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The United Kingdom’s Naval Shipbuilding Industrial BaseThe Next Fifteen Years

Mark V. Arena

Hans Pung

Cynthia R. Cook

Jefferson P. Marquis

Jessie Riposo

Gordon T. Lee

The RAND Corporation is a nonprofit research organization providing objective analysis and effective solutions that address the challenges facing the public and private sectors around the world. RAND’s publications do not necessarily reflect the opinions of its research clients and sponsors.

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Library of Congress Cataloging-in-Publication Data

The United Kingdom’s naval shipbuilding industrial base : the next fifteen years / Mark V. Arena ... [et al.]. p. cm. “MG-294.” Includes bibliographical references. ISBN 0-8330-3706-4 (pbk. : alk. paper) 1. Shipbuilding industry—Great Britain. 2. Warships—Great Britain—Design and construction. 3. Great Britain. Ministry of Defence—Procurement. 4. Great Britain. Royal Navy—Procurement. I. Arena, Mark V.

VM299.7.G7U55 2005 338.4'7623825'0941—dc22

2005001980

iii

Preface

In the autumn of 2003, the United Kingdom’s Ministry of Defence(MOD) engaged the RAND Corporation to study the domesticcapacity for naval ship construction. The impetus for the study was aconcern on the MOD’s part that the confluence of several ship-building programmes (i.e., Astute, MARS, CVF, FSC, JCTS, andType 451) could potentially overburden the industry. The objectiveof the study was to take a strategic look at the shipbuilding industryover the next 15 years to determine where there might be capacitylimitations and to offer recommendations as to how any identifiedlimitations might be addressed. For example, are there productionskills or trades that will be in short supply? If so, what policy optionsare open to the government to remedy such a shortfall (trainingincentives, shifting of work, etc.)? The scope of the study was limitedto the UK industry, in line with current defence procurement policy.This report is the final product of that study and summarises theanalysis.

We organised our analysis by decomposing capacity into threemajor elements: labour, facilities, and suppliers. Labour encompassedall aspects of ship production (manufacture, design, engineering,management, outfitting, and support). The facilities analysis ad-dressed the throughput limitations of the major shipyard assets, suchas piers, docks, and slipways. For simplicity, we limited this examina-tion to facilities involved in final assembly and afloat outfitting. The____________1 For a full listing and description of these ships, see Table S.1 in the Summary.

iv The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

suppliers make up a major portion of the shipbuilding value chainand provide a wide range of different products and services—frompainting services to complex weapon systems. The suppliers’ ability tomeet any peak in demand will affect the ability of the MOD toprocure ships within the desired time frame and budget.

For our capacity evaluations, we relied on data surveys andinterviews with many firms and organisations associated with ship-building in the United Kingdom, including shipbuilders, ship repair-ers, suppliers, industry associations, and government organisations.This interaction took the better part of five months.

This report should be of special interest not only to the MOD’sDefence Procurement Agency (DPA) but also to service and defenceagency managers and policymakers involved in weapon system acqui-sitions on both sides of the Atlantic. It should also be of interest toshipbuilding industrial executives in the United Kingdom.

This research was sponsored by the MOD and conductedwithin RAND Europe and the International Security and DefensePolicy Center of the RAND National Security Research Division,which conducts research for the US Department of Defense, alliedforeign governments, the intelligence community, and foundations.

For more information on RAND Europe, contact the president,Martin van der Mandele. He can be reached by email at mandele@rand.org; by phone at +31 71 524 5151; or by mail at RANDEurope, Netonweg 1, 2333 CP Leiden, The Netherlands. For moreinformation on the International Security and Defense Policy Center,contact the director, Jim Dobbins. He can be reached by email atJames_Dobbins@rand.org; by phone at (310) 393-0411, extension5134; or by mail at RAND Corporation, 1200 South Hayes Street,Arlington, VA 22202-5050 USA. More information about RAND isavailable at www.rand.org.

v

Contents

Preface....................................................................... iiiFigures ...................................................................... xiTables .......................................................................xvSummary.................................................................. xviiAcknowledgements ...................................................... xxxvAbbreviations ...........................................................xxxvii

CHAPTER ONE

Introduction .................................................................1Warship Production Is a Unique Industry...................................2MOD Ship Programmes.....................................................5

Programmes Past Main Gate .............................................6Projects Pre–Main Gate...................................................7Other Speculative Programmes ...........................................9Notional Programme Timelines ........................................ 10

Business Environment of UK Naval Shipbuilding Industrial BaseSince 1985 ........................................................... 12

Issues for Policymakers..................................................... 16Study Structure ............................................................ 17

Plan ..................................................................... 18Labour .................................................................. 19Facilities................................................................. 19Suppliers ................................................................ 19

Survey of the UK Shipbuilding Industry .................................. 20Study Outline.............................................................. 21

vi The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

CHAPTER TWO

Labour Demand ........................................................... 23Methodology............................................................... 24Basic Assumptions ......................................................... 27

Additional Assumptions ................................................ 31Current MOD Plan: Overall Labour Demand ............................ 33Current MOD Plan: Demand for Specific Labour Skills.................. 35

Management Labour Skills ............................................. 35Technical Labour Skills ................................................. 36Structural Labour Skills................................................. 37Outfitting Labour Skills ................................................ 38Support Labour Skills................................................... 39

Macro Versus Micro View of Demand .................................... 39Alternate Future Scenarios ................................................. 41

Scenario 1: Decreased MOD Requirements or Budgets................ 42Scenario 2: Addition of Future Submarine to the MOD’s

Requirements ........................................................ 44Scenario 3: Increased MOD Future Requirements..................... 47Future MOD Programme Challenges .................................. 50

Options for Managing Increased MOD Demand......................... 51Illustrative Results of Level-Loading Future MOD

Labour Demand ..................................................... 55Other Build Strategies .................................................. 58

Summary................................................................... 59

CHAPTER THREE

The Supply of Naval Shipyard Labour in the United Kingdom ......... 61Employment Status of the UK Shipbuilding and Repair

Industrial Base ....................................................... 62Regional Differences in UK Shipyard-Related Employment........... 62Sector Employment in the UK Shipbuilding and Repair Industry..... 63UK Shipbuilding and Repair Industry Workers Are Ageing ........... 66Small Reliance on Temporary Workers................................. 67

Ability of the Naval Shipyards to Expand Their Workforces.............. 68Concerns About Labour Shortages ..................................... 68

Contents vii

Recruitment in the Shipbuilding and Repair Industry Faces SignificantObstacles ............................................................. 69

Shipyard Training Initiatives ........................................... 70Consequences of Unemployment, Demographic Changes, and Shipyard

Redundancies ........................................................ 71Recent Shipyard Recruiting Efforts..................................... 73Pools of Labour That Could Be Tapped................................ 75Shipyards Rely on Outsourcing to Varying Degrees ................... 76

A Comparison of the Supply of Naval Workers with the Demand UnderDifferent Future Scenarios........................................... 77

Three Supply Cases ..................................................... 78Shipyard Labour Supply Model ........................................ 80Results of the Shipyard Supply Analysis ................................ 81

Concluding Observations.................................................. 86

CHAPTER FOUR

Facilities Utilisation at the UK Shipyards ................................ 89Ship Production Facilities and Phases ..................................... 89How We Studied Facilities and Phases .................................... 91

Identifying Demand and Assigning Facilities to Phases ................ 92Final Assembly Facilities’ Capacity and Considerations ................... 93Afloat Outfitting Facilities Capacity Considerations ...................... 96Capacity Implications for Future Programmes ...........................100

Type 45 ................................................................101CVF....................................................................106MARS..................................................................107Astute ..................................................................108LSD(A) ................................................................109Future Surface Combatant.............................................109Joint Casualty Treatment Ship ........................................110

Summary..................................................................110

CHAPTER FIVE

The UK Shipbuilding Supplier Industrial Base .........................113Research Approach........................................................113Characterising the Supplier Base—The Shipyard Perspective............115

viii The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

What They Supply.....................................................115Where They Are .......................................................117Three Measures of Supplier Strength ..................................118Summary...............................................................122

Supplier Survey Results ...................................................122Demographic Information on Sample Suppliers ......................123Suppliers’ Business Base................................................124Number of Customers .................................................127Number of Competitors ...............................................128Recruiting Challenges..................................................129Engineers Presented the Most Challenges for Recruiting..............129Challenges Working for the MOD ....................................130Summary...............................................................132

Results from Linking Shipyard and Supplier Surveys ....................132Developing an Effective Supplier Strategy................................133Conclusion................................................................134

CHAPTER SIX

Nontraditional Sources for Naval Shipbuilding:Commercial Shipbuilding and Offshore Industries.................137

Declining Markets for Offshore and Commercial Work .................138Potential Resources Available .............................................140

Labour .................................................................141Facilities................................................................143

Strengths and Weaknesses of Using Offshore Firms in NavalProduction ..........................................................143

Summary..................................................................146

CHAPTER SEVEN

Issues for the Ministry of Defence to Consider .........................147Summary..................................................................147

Labour Demand .......................................................147Labour Supply .........................................................149Facilities................................................................150Suppliers ...............................................................151

Potential Remedial Actions That MOD Can Take ......................151

Contents ix

The MOD Needs to Make Long-Term Industrial Planning Part ofthe Acquisition Process .............................................154

Define the Appropriate Role of the Offshore Industry ................156Carefully Consider the Implications of Foreign Procurement of

Complete Ships .....................................................157Labour Wage Pressures During Peak Demand ........................158Encourage Long-Term Investment Through Multi-Ship Contracts ..159Consider the Feasibility of Competition in Light of the Industrial Base

Constraints..........................................................159Explore the Advantages of Common Design Tools ...................160

Conclusions ...............................................................160

APPENDIX

A. Effects of Schedule Slippage on MOD Labour Demands............163B. Ship Dimensions ......................................................171C. Skill Breakout, by Management/Technical and Manufacturing

Categories ............................................................173

References.................................................................175

xi

Figures

S.1. Schedule of MOD Naval Programmes, 2005–2020...............xxS.2. Future MOD Labour Demands, by Programme ................xxivS.3. Direct Labour Demands for the Current Plan and a Level-Loaded

Example...........................................................xxvS.4. Projected Shipyard Labour Supply Without Additional

Recruitment, 2004–2020 ........................................xxviS.5. Shipyard Employment Projections Versus Demand........... xxviiiS.6. Total UK Final Assembly and Afloat Outfitting Facility

Requirements, 2004–2020.......................................xxix1.1. Gantt Chart of MOD Naval Programmes over the Next

15 Years ........................................................... 101.2. Royal Navy Fleet Size over the Past Four Decades ............... 121.3. Number of Combatants Delivered Each Year .................... 131.4. History of Naval Shipbuilders Post-Privatisation................. 151.5. Study Hierarchy................................................... 182.1. RAND’s Basic Labour Forecasting Model........................ 242.2. Example of Direct Labour Distribution Curves for an Individual

Ship Class ......................................................... 272.3. Individual Ship Aggregation to Represent Entire Shipbuilding

Programme........................................................ 282.4. Future MOD Labour Demand, by Programme .................. 332.5. Future MOD Labour Demand for Management Skills,

2004–2025........................................................ 35

xii The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

2.6. Future MOD Labour Demands for Technical Skills,2004–2025........................................................ 36

2.7. Future MOD Labour Demand for Structural Skills,2004–2025........................................................ 37

2.8. Future MOD Labour Demand for Outfitting Skills,2004–2025........................................................ 38

2.9. Future MOD Labour Demand for Support Skills,2004–2025........................................................ 39

2.10. Scenario 1: Decreased MOD Requirements or Budgets—Labour Projections by Programme, 2004–2025.................. 43

2.11. Scenario 1: Decreased MOD Requirements or Budgets—Labour Projections by Skill Trade, 2004–2025 .................. 44

2.12. Scenario 2: Addition of Future Submarine—Labour Projections by Programme, 2004–2025.................. 46

2.13. Scenario 2: Addition of Future Submarine—Labour Projections by Skill Trade, 2004–2025 .................. 47

2.14. Scenario 3: Increased MOD Future Requirements—Labour Projections by Programme, 2004–2025.................. 49

2.15. Scenario 3: Increased MOD Future Requirements—Labour Projections by Skill Level, 2004–2025 ................... 49

2.16. Level-Loading by Extending the Time Between Ship-Builds..... 522.17. Impact of Moving Programmes to Avoid Peak Demand ......... 532.18. Impact of Both Extending and Moving Programmes to Avoid

Peak Demand ..................................................... 542.19. Level-Loading Labour Projections, by Programme ............... 562.20. Base Case and Level-Loaded Demands Compared with Current

MOD Demand ................................................... 562.21. Level-Loading Labour Projections, by Skill Level ................ 573.1. UK Shipbuilding, Repair, and Offshore Employment in

the 1990s.......................................................... 633.2. Regional Shipbuilding, Repair, and Offshore Employment in

the 1990s.......................................................... 643.3. Share of Workers in Shipbuilding and Repair Subsectors

in 2000............................................................ 653.4. Number of Workers in the Naval Yards, 1999–2003 ............ 653.5. Age Profile of the Workforce in the Naval Shipyards in 2003 ... 67

Figures xiii

3.6. Unemployment Levels in Important Shipyard Townsin 2002............................................................ 72

3.7. Number of Recruits in the Naval Shipyards, 1999–2003 ........ 743.8. Total and Peak Outsourcing Undertaken by UK Naval

Shipbuilding and Repair Companies ............................. 773.9. Shipyard Labour Supply Model .................................. 80

3.10. A Comparison of the Shipyard Labour Supply and Demand,2004–2020........................................................ 81

3.11. Projected Shipyard Labour Supply by Skill Category WithoutAdditional Recruitment, 2004–2020 ............................. 82

3.12. Forecast of the Naval Shipyard Management and TechnicalWorkforce: Minimised Recruitment.............................. 83

3.13. Forecast of the Naval Shipyard Manufacturing Workforce:Minimised Recruitment .......................................... 84

3.14. Forecast of the Shipbuilding Manufacturing Workforce:8 Percent Recruitment Rate ...................................... 85

4.1. Ship Production Timeline ........................................ 904.2. Distribution of Final Assembly Facility Lengths ................. 934.3. Distribution of Final Assembly Facility Beams ................... 954.4. Distribution of Final Assembly Facility Draughts ................ 954.5. Distribution of Afloat Outfitting Facility Lengths ............... 974.6. Distribution of Afloat Outfitting Facility Beams ................. 984.7. Distribution of Afloat Outfitting Facility Draughts .............. 994.8. Type 45 Work Allocation........................................1014.9. Final Assembly Facilities Requirements for Type 45 Programme:

VT Shipbuilding .................................................1034.10. Final Assembly Facilities Requirements for Type 45 Programme:

BAE Systems .....................................................1044.11. Afloat Outfitting Facilities Requirements for Type 45 Programme:

BAE Systems .....................................................1054.12. Final Assembly and Afloat Outfitting Facilities Requirements for

MOD Ships, 2004–2020 ........................................1115.1. Industrial Sectors of the Identified Suppliers ....................1165.2. Locations of Suppliers, by Country..............................1175.3. Suppliers’ Ability to Take on More Work .......................1195.4. Long-Term Stability and Viability of Suppliers .................120

xiv The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

5.5. Dependence on Supplier/Competition ..........................1215.6. Size of Suppliers, by Number of Employees in 2003............1235.7. Average Supplier Dependence on Different Sectors .............1255.8. Percentage of Suppliers’ Revenue Derived from MOD Ship

Programmes......................................................1265.9. Percentage of Suppliers’ Revenue Derived from All Ship and

Offshore Work...................................................1265.10. Percentage of Suppliers’ Revenue Derived from Military

Work.............................................................1275.11. Numbers of Marine and Non-Marine Customers...............1285.12. Numbers of Marine and Non-Marine Competitors.............1295.13. Ease of Recruiting Four Classes of Employees...................1306.1. Decline of Commercial Shipbuilding in the United Kingdom

Over the Past Two Decades .....................................1396.2. UK Offshore New-Build Market ................................139A.1. Schedule-Slip Scenario Labour Projections by Programme......166A.2. Schedule-Slip Scenario Labour Projections by Skill Level .......168A.3. Base Case, Level-Loaded, and Schedule Slip Demands Compared

to Current MOD Demand ......................................169

xv

Tables

S.1. Future MOD Ship Programmes.................................. xix1.1. Average Age and Full Ship Displacement of the Fleet............ 112.1. Current MOD Shipbuilding Programmes........................ 292.2. Projected MOD Shipbuilding Programmes ...................... 292.3. Scenario 1: Decreased MOD Requirements or Budgets

Programme Assumptions ......................................... 422.4. Scenario 2: Addition of Future Submarine Programme

Assumptions ...................................................... 452.5. Scenario 3: Increased MOD Future Requirements—

Programme Assumptions ......................................... 484.1. Number of Final Assembly Facilities at Naval Shipbuilders That

Can Accommodate a Ship with a Given Beam and Length ...... 964.2. Number of Final Assembly Facilities at Naval Repair and Other

Firms That Can Accommodate a Ship with a Given Beam andLength............................................................. 97

4.3. Number of Afloat Outfitting Facilities at Naval Shipbuilders ThatCan Accommodate a Vessel with Certain Length and BeamCharacteristics..................................................... 99

4.4. Number of Afloat Outfitting Facilities at Naval Repair and OtherFirms That Can Accommodate a Vessel with Certain Length andBeam Characteristics.............................................100

4.5. Ships Replaced by MARS........................................1086.1. Labour Resources of Medium-Sized Shipbuilders and

Other Firms......................................................142

xvi The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

7.1. Percentage Growth at Peak Demand Relative to CurrentEmployment Levels ..............................................148

B.1. Basic Ship Dimensions...........................................171C.1. Skill Breakout, by Management/Technical and Manufacturing

Categories ........................................................174

xvii

Summary

The United Kingdom’s Ministry of Defence (MOD) is in the earlystages of an ambitious effort to renew and upgrade its naval fleet overthe next two decades through the production of new ships and sub-marines. Defence policymakers are seeking to gain a fuller under-standing of the ability that shipyards, workers, and suppliers in theUnited Kingdom have to produce and deliver these vessels at the paceand in the order planned by the MOD.

This analysis, done at the request of the MOD’s Defence Pro-curement Agency (DPA), focused on answering three fundamentalquestions: Can the existing shipbuilding industrial base meet futuredemands? Do problems exist with the numbers and types of facilitiesor the numbers and skills of the workforce? and If problems exist orcan be anticipated, what can be done to alleviate them?

Relying both on public and proprietary data and on surveys ofgovernment and industry representatives,2 the analysis addressedthese questions by examining the capacity of the UK industrial base’scurrent workforce and facilities, identifying the demands for theseresources over the next two decades and exploring options to addresssituations in which future demands might exceed capabilities. Thestudy aimed to help MOD policymakers (1) gain an understanding ofthe capacity of the United Kingdom’s naval shipbuilding industrialbase to successfully implement the MOD’s current acquisition plan,____________2 By industry, we include naval shipbuilders and repairers; suppliers; design firms; and firmsinvolved in commercial maritime work (i.e., offshore industry, commercial repairers, andproducers).

xviii The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

and (2) gauge how alternative acquisition requirements, programmes,and schedules might affect the capacity of that industrial base.

MOD Ship Programmes3

The MOD is planning an extensive shipbuilding programme for thenext 15 years, which can be divided into two main categories. Thefirst category comprises programmes on contract that have alreadypassed through the MOD’s final approval process (Main Gate) andare somewhere in the demonstration and manufacture stage. The sec-ond category comprises prospective programmes that have yet to passMain Gate but which the MOD anticipates will be built. Of course,the future procurement programmes continue to evolve in line withthe strategic environment, financial imperatives, industrial develop-ments, and new opportunities. Any statement of the programmesthemselves, the number of ships, and the timings are speculative—particularly for the second category of programmes not yet past MainGate. Thus, the reader must keep this caveat in mind when inter-preting the results.

Table S.1 describes the potential future ship programmes and thepotential size of their production runs.

Figure S.1 lays out the potential design and production time-lines for the future programmes as identified in Table S.1.

The blue bars represent the programmes (or portions of pro-grammes) that are past Main Gate and on contract. The grey barsrepresent the programmes that are either pre–Main Gate or potentialadditional procurements for the class that have not been contracted.The timings are a synthesis of our assumptions, data provided by theIntegrated Project Teams (IPTs), and data provided by the shipyards.The dates are representative only and are not fixed as certain or arespecific requirements from the Equipment Capability Customers.____________3 The information for this section is extensively drawn from the DPA’s Web site(www.mod.uk/dpa/ipt/index.html) on the agency’s current projects, the Royal Navy Website (www.royal-navy.mod.uk), and Royal Navy (2003).

Summary xix

Table S.1Future MOD Ship Programmes

Programme Description

PotentialProduction

Run

On Contract/Past Main Gate

Astute-classattack sub-marine

The Astute is a new nuclear attack submarine (SSN)intended to replace the existing Trafalgar and Swiftsureclasses. It is being designed for the support of the Van-guard ballistic nuclear submarine (SSBN), antisubmarinewarfare, anti-surface warfare, surveillance and intelli-gence gathering, and land attack. There are three shipscurrently on order with the potential of six moreacquired, for a total of nine.

9

Bay-classlanding shipdock (LSD[A])

These new vessels are part of the Royal Fleet Auxiliary’s(RFA’s) rapid deployment force and will replace variouslanding ship logistic (LSL) classes in the RFA fleet. TheLSD(A)’s main role is logistic support, bringing troops,trucks, tanks, and cargo into battle. It can also be usedfor humanitarian missions.

4

Type 45 Type 45 will be a multi-role destroyer whose principalmission is antiair defence (DDG). The first six ships ofthe class are currently on order. There is a potential forup to six additional ships to be procured. Both BAESystems (Clyde Shipyards) and VT Shipbuildinga (Ports-mouth) are involved in the production of these ships.

12

Prospective/Pre–Main Gate

Future AircraftCarrier (CVF)

CVF is the Royal Navy’s next generation of aircraft car-rier, meant to replace the current Invincible-class (CVS)carrier.

2

Future SurfaceCombatant(FSC)

FSC is notionally thought to be frigate-sized vessel andwill replace the Type 23’s and Type 22’s currently in thefleet.

14

Joint CasualtyTreatmentShip (JCTS)

JCTS is single-ship programme that will provide ad-vanced medical capabilities to all three UK services. Theship can be used for combat operation support as wellas humanitarian missions. As a ‘grey hull’ and thereforedesignated to operate within a task force, the ship willnot be subject to the Geneva Conventions as would aconventional hospital ship.

1

Military AfloatReach andSustainability(MARS)

The MARS programme will be a series of ships (numberand types currently undefined) that will provide sup-plies to the fleet and forces ashore. These supplies are acombination of dry goods and provisions, generalstores, water, ammunition, and fuel products.

10

xx The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Table S.1—Continued

Programme Description

PotentialProduction

Run

OffshorePatrol Vessels–(OPV[H])

The Royal Navy has provisional plans to replace theCastle class of offshore patrol vessels now in use in theFalkland Islands. These new ships will have the ability tooperate helicopters and will be leased on a similar basisas used with River-class patrol vessels.

2

Future Sub-marine

This submarine will be a follow-on to the Astute class.Its current size and mission are not yet defined.

7

Future Mine-hunter

This class will replace the minehunters currently in theRoyal Navy fleet.

4

aPart of VT Group, formerly known as Vosper Thornycroft.

Figure S.1Schedule of MOD Naval Programmes, 2005–2020

RAND MG294-S .1

2005 2010 2015 2020

LSD(A)

Type 45

OPV(H)

CVF

Astute

JCTS

MARS

FSC

Future Submarine

Future Minehunter

On Contract Prospective

Year

Figure S.1 shows that there will be periods when up to six pro-grammes will be in various stages of design and construction. Notonly will there be high concurrency, but these ships produced will be

Summary xxi

the largest of their type built in quite some time. This situation con-trasts the current case in which there are only three programmes oncontract. In 2010, for example, the Type 45, CVF, Astute, JCTS,MARS, and FSC programmes will all be under way simultaneously;however, not all these programmes will be in production at the sametime. Nonetheless, the period between 2007 and 2013 is much busierfor naval shipbuilding than has been seen recently.

Today, only a handful of UK shipbuilders will likely be able toproduce these naval ships. After decades of consolidations and bank-ruptcies in the UK shipbuilding industry, only three major firms arecurrently involved in building ships for the MOD: BAE Systems,Swan Hunter, and VT Shipbuilding. In addition, there are threefirms primarily involved in the repair of warships: Babcock Engi-neering Services, Devonport Management Limited, and Fleet Sup-port Limited. For purposes of this report, the shipyards owned bythese six firms are collectively termed ‘naval shipyards’. An additionalfirm, Ferguson Shipbuilders, is also active but focuses mainly on thecoastal patrol, ferries, fishery protection, and other commercial mar-kets.

Policy Issues Pursued by RAND

This substantial MOD building programme, combined with theUnited Kingdom’s diminished industrial base, raises a number ofquestions for defence policymakers:4

• Is the MOD shipbuilding plan feasible given the constraints ofthe industrial base?

• What is the programme’s effect on the shipbuilders and shiprepairers?

____________4 An equally important issue, but beyond the scope of this study, is whether government canafford the shipbuilding plan. The increased level of shipbuilding activity will result in greaterdefence spending for naval acquisition. Whether this greater level of spending can be accom-modated within the broader defence budget is not clear.

xxii The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

• Is the supplier base robust enough to meet the demand?• Are there alternative timings for programmes that make the plan

more robust?• What is the effect if procurement quantities change?

At the request of the DPA, researchers of the RAND Corpora-tion began addressing these questions in the autumn of 2003. Theirmain goal was to help MOD decisionmakers understand the capacityof the UK naval shipbuilding industrial base and its ability to under-take the MOD’s shipbuilding programme over the next 15 years.

Study Structure

To analyse the issues facing the MOD, we decomposed the capacityevaluation into a supply and demand assessment in three distinctareas: labour, facilities, and suppliers. The study team evaluated theseareas with respect both to the MOD’s ‘current plan’ (which assumesthat everything will be built as envisioned by the MOD’s programmemanagers) and to several alternative shipbuilding scenarios:

• a pessimistic funding scenario, in which funding and/or require-ments decrease such that fewer vessels are purchased

• an optimistic funding scenario, in which requirements andfunding increase

• a new submarine scenario, in which a new, large submarine isdesigned and built

• a ‘level-loaded’ scenario, in which design and production tim-ings are lengthened.

Our evaluations depended on two surveys that we conductedwith firms involved in the shipbuilding industry and on interviewswith government officials and industry associations. The first surveythat the RAND team sent out requested information from severaldozen firms involved in maritime design, repair, and production ontheir employment, future workload demands, facilities available, and

Summary xxiii

their key suppliers. The second survey went to some 200 key suppli-ers that the firms had identified in the first survey. This latter surveyasked the suppliers about their employment, the relative competitive-ness of their market, their dependence on MOD and maritime work,and the challenges they anticipate in the future. After receiving bothsurveys, the RAND team held follow-on conversations with industryrepresentatives to clarify data and discuss issues about which the sur-veys had not inquired.

In addition, the RAND team interviewed officials at a numberof industry associations and government agencies.

How Will the MOD Programme Affect Shipyard Labour?

Labour Demand

This part of the analysis depended on a labour projection model thatthe RAND team developed.5 The team used data obtained in the firstsurvey of shipyards to populate this forecasting model, which allowedit to estimate future demands for labour emerging from the currentMOD acquisition plan and from the alternative scenarios describedabove.

The team’s analysis of the current MOD plan found that over-lap of four large programmes—the Type 45, CVF, MARS, andAstute—is likely to cause demand for direct labour (all skills—e.g.,management, technical, and manufacturing) to peak in 2009 at alevel about 50 percent higher than the 2004 demand levels. Oncepast the peak, overall workload demand steadily declines for the fore-seeable future. We show this workload projection in Figure S.2.

Structural and outfitting trades likely will show the most signifi-cant increase (in absolute terms). The technical workforce demandpresents a more difficult challenge. The RAND team found that there

____________5 See Arena, Schank, and Abbott (2004) for more details.

xxiv The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Figure S.2Future MOD Labour Demands, by Programme

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could be a sharp drop-off in demand for the technical workforce6 inthe next two to three years, resulting largely from the rundown of thedesign work for the Type 45 and Astute. Thereafter, the trendreverses dramatically as CVF, MARS, and JCTS place near-simultaneous demand for technical workers. In the span of a fewyears, the demand for technical workers nearly doubles from its low.

With one exception, the other scenarios we explored alsoinvolved similar sharp increases in demand for production labourfollowed by steady decreases. Such increases in labour demand willforce the naval shipbuilding and repair industrial base to rapidlyincrease its workforce, especially in specific outfitting, structural, andtechnical skills. Demands for technical workers under the alternativescenarios are much the same as the current plan. After an initialdecline, the demand for these workers increases drastically. One____________6 Technical workforce includes the follow functions: design, drafting/CAD, engineering,estimating, planning, and programme control. See Appendix C for more detail.

Summary xxv

notable exception was the scenario that involved a Future Submarine,which could make substantial demands for technical workers past2010.

One way that the MOD could reduce these peak demandswould be to level-load the ship production plan, which would involvestarting programmes earlier or later, extending their build schedules,and increasing their build intervals. However, the MOD will need toconsider operational needs in determining whether such an approachis feasible. Figure S.3 shows the change in total, direct employmentfor the current plan and a level-loaded example relative to thedemand in 2004.

Labour Supply

The naval shipbuilding and repair industry will be challenged to meetthe peak workforce demands as outlined above. To determine thenature and extent of that challenge, the RAND team built a spread-sheet model to forecast the labour supply for naval shipbuilders andrepairers. The team then compared the potential supply picture withthe projected total demand under the current MOD plan and the

Figure S.3Direct Labour Demands for the Current Plan and a Level-Loaded Example

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xxvi The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

level-loaded scenario described above. For the purposes of thisanalysis, the team combined the five skill subcategories into two:management/technical and manufacturing (structure, outfitting, anddirect support). This simplification was required because of thelimitations with data available.

As Figure S.4 indicates, the number of workers would drop frommore than 12,000 workers to around 4,600 in the next 17 years if nosteps are taken to replenish the workforce through hiring apprenticesor experienced workers from other industries or from the ranks of theunemployed. We in no way suggest that the shipyards will not replaceworkers. In fact, several have active apprentice and recruiting pro-grammes. Figure S.4 also shows how rapidly the current employmentranks decline because of the ageing of the workforce.

Figure S.4Projected Shipyard Labour Supply Without Additional Recruitment,2004–2020

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Summary xxvii

Although there is no current shortage of workers, the shipyardsexpressed concern about their future ability to recruit particular skills(e.g., design, electrical, test and commissioning, and steel work).Many of the shipyards have begun apprentice programmes in recog-nition of the ageing problem that are aimed at maintaining current orcore workforce levels and not necessarily to meet future peak work-load.

There are, of course, other labour sources from which the ship-yards can draw workers. For example, some of the shipyards haverecently made workers redundant and may be able to rehire theseformer workers. There is also the opportunity to draw workers fromrelated industries and from among the general unemployed. Anotheralternative for the shipyards is to rely more heavily on outsourcedactivities, a trend that has been increasing as of late.7

Despite these additional sources of labour, the RAND teamconcluded that it will be difficult for the shipyards to grow to meetpeak labour demands. Figure S.5 shows workload demand for thebaseline and level-loading scenarios along with employment projec-tions. Assuming a modest growth rate, the shipyards as a whole maynot be able to meet peak labour demand for production workers.Even under the level-loaded scenario, shipyards will approximatelymeet the peak production demands. For the technical workforce,there are currently enough workers at the firms to grow to the neededpeak levels, but only if these workers are retained through the near-term downturn. In all, meeting the peaks in workload demand willrequire that shipyards share work to a greater extent than they donow.

These supply and demand results present labour issues at anaggregate (macro) level to simplify the presentation and to protectbusiness-sensitive information. The macro results are useful in thatthey portray the magnitude and the timing of the labour issues the

____________7 Of course, there is a limit to the extent that these activities can be outsourced. See Schanket al. (forthcoming) for more detail.

xxviii The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Figure S.5Shipyard Employment Projections Versus Demand(baseline and level-loaded)

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industry faces. However, the macro view masks the effect at an indi-vidual shipyard or firm level. In a sense, the macro view could beinterpreted as a case in which there is an unlimited ability to sharework between firms. Thus, where the macro-level demand mightappear reasonable or achievable, there may be problems of either ir-regular or high demand for labour at an individual firm making sucha plan difficult to implement.

How Will the MOD Programme Affect Shipyard Facilities?

In this part of the analysis, the RAND study team focused on thefacility implications of the current MOD plan. In particular, the teamconcentrated on final assembly facilities (docks, slipways, land-levelareas, etc.) and afloat outfitting locations (mainly piers and quays).

Summary xxix

The facilities considered included those at the naval shipyards andsome commercial yards.

Not surprisingly, the RAND team found that different pro-grammes likely will stress different facilities. In general, as Figure S.6indicates, the demand for final assembly facilities will be particularlyhigh between 2006 and 2010.8

The Type 45 programme will create a substantial demand forfinal assembly and outfitting locations because of the build intervalbetween ships (assumed to be six months). Although the facilities onthe Clyde might be able to handle this schedule (with facilities up-grades and some careful scheduling), extending the build interval ofthe Type 45 to nine months might help to alleviate any potentialproblems and make the build schedule more robust.

Figure S.6Total UK Final Assembly and Afloat Outfitting Facility Requirements,2004–2020

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____________8 Because of the sensitivity of the data, this demand does not include all refit and repairwork.

xxx The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

The sheer size of the ships in the CVF and MARS programmesposes challenges. CVF assembly will require some facilities upgradesand investments because no assembly location today could handle theCVF ships without modification or upgrade. Further complicatingthe picture is whether the final CVF assembly location will also beused to build large block portions of the ship. There is a potentialoverlap between the assembly of the first hull and the production ofblocks for the second hull. This overlap implies that the second hull’sblocks will either need to start construction outside the final assemblydock or be delayed until the first hull leaves the dock.

Similarly, large MARS ships will be equally challenged for a finalassembly location. Although there are facilities in the United King-dom that could construct these ships, it is likely that at least twofacilities (or a facility that can construct two ships at once) would beneeded based on the notional delivery schedule of one ship per year.In most cases, any of these candidate facilities would need to be up-graded or reopened—thus requiring investment.

How Will the MOD Programme Affect ShipbuildingSuppliers?

More than half the unit cost value of a naval vessel is provided byfirms other than the shipbuilder.9 So the ability of suppliers to meetthe demand based on the MOD’s plans is an important considerationin addressing the UK industry’s capacity. The study’s surveys of boththe shipyards and the suppliers indicate that there will be generallyfew issues surrounding the increased workload for the suppliers. Forthe most part, the suppliers do not rely on MOD business, so theyare less subject to the variations in demand (in contrast with the ship-yards). Further, most of the suppliers are based in the United King-dom. However, these suppliers have indicated that the uncertainty in____________9 The Clyde Shipyards Task Force Report (2002, p. 41).

Summary xxxi

the MOD’s programme hinders their ability to plan and invest in atimely way.

The Role of Nontraditional Sources for NavalShipbuilding

The UK commercial shipbuilding and offshore industry haveresources that may help to produce ships for the MOD. Theseresources are currently underemployed because of downturns in bothsectors; therefore, these resources could be available to the MOD forits shipbuilding programme. Medium-sized shipbuilders10 have had arole in the past and could play a role in the production of future shipclasses—from a builder of blocks and modules to a producer ofsmaller vessels. The offshore industry also has the potential to con-tribute to the programme. These firms have facilities and labourresources that could be employed—most notably in management andtechnical skills. However, its role, if any, will need to be carefullymatched to its capabilities and skills. For programmes that are similarto commercial products, the commercial/offshore industry could playa broader role in management, design, and production. However, forcombatant ships, their role will be more limited.

Issues for the MOD to Consider

The RAND team made short- and long-term observations for theMOD.

In the short term, the MOD could:

• Consider ways to level-load the labour demand. In essence, theMOD will need to carefully consider the timings of various pro-grammes. Some programmes will need to be shifted later, whileothers may need to have increased build intervals. It may also be

____________10 Appledore (owned by DML), Ferguson Shipbuilders, and Harland and Wolff.

xxxii The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

necessary to shift design work earlier to mitigate the near-termlack of demand (the near-term dip in technical labour demand).The DPA will need to consider the labour effects at the individ-ual firm or shipyard level to achieve the benefits of level-loading.Thus, any level-loading plan will need to be developed in con-sultation with industry.

• Work with the Department of Trade and Industry to encouragetraining in skills that are in demand outside the shipbuilding andrepair industry. The UK government and shipbuilding industryshould focus on training skills that are readily employable out-side shipbuilding. In this way, any resulting unemployment canbe minimised.

• Consider relaxing the shipbuilding industrial policy to mitigateproblems resulting from peak demand. The MOD should re-examine industrial policy with respect to obtaining work con-tent overseas. For example, the policy might allow UK shipyardsto obtain major units or subassemblies from abroad in cases inwhich there is peak demand and it is not possible to easilyobtain that content domestically.

• Encourage the use of more outsourcing. One way that commercialshipbuilders manage variable workloads is to employ out-sourcing vendors that provide services and goods.

• Evaluate the future of shipbuilding at Barrow. With the currentrealignment within BAE Systems, the Barrow-in-Furness facilityis exclusively dedicated to submarine production. The end ofsurface ship building in Barrow resulted in significant redun-dancies and the closure of some facilities. Barrow remains an un-tapped source of production capability and could likely play asignificant role in the coming shipbuilding programme.11

• Consider the use of medium-sized shipyards to meet some of thisdemand peak. Shipyards such as Ferguson, Appledore, and Har-land and Wolff could play a role in meeting the peak demandsby constructing blocks or structural units. Ferguson and Apple-

____________11 Since the original writing of the report, BAE Systems Naval Ships has stated that it is nowpossible to use Barrow surface ship capability.

Summary xxxiii

dore could produce smaller naval vessels, like the survey vesselsboth have produced in the last few years. Harland and Wolffwas, at one time, capable of producing large auxiliary vessels.Whether that capability could be cost-effectively reestablishedremains to be seen.

• Explore the utilisation of facilities for Type 45, CVF, and MARS.There may be facility challenges for these programmes, and theMOD needs to understand where there are potential conflictsand the actions that can be taken to mitigate them.

• Have the Supplier Relations Group (SRG) investigate suppliers thatare thought to be at risk. In our surveys, the shipyards identifiedcertain suppliers they felt were at risk. It might be worthwhilefor the SRG to interact with the shipyards and suppliers to bet-ter understand the ones at risk and any corrective actionsrequired.

In the long term, the MOD should, among other things:

• Make long-term industrial planning part of the acquisition process.This type of planning must become part of the process that theMOD uses to define the timing for the various naval require-ments. The potential benefits of long-term planning include theability to understand financial implications, reduce cost andschedule risks, and anticipate future problems. A strategicexamination of the overall build programme with respect to theindustrial impact should be done at least annually with an out-look of 10 to 15 years.

• Define an appropriate role for the offshore industry.12 Better work-sharing between the shipyards will be necessary to meet the peaklabour demand. The offshore industry may help the naval ship-building industry bring this collaboration about. Although theoffshore industry might not feature strongly in direct fabrica-

____________12 That is, those firms involved in the design, manufacture, and support of capital facilitiesfor oil and gas in the sea (mainly the North Sea for the United Kingdom).

xxxiv The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

tion, it might feature more prominently in assembly and inte-gration.

• Carefully consider the implications of foreign procurement of com-plete ships. Because foreign procurement carries risks, we rec-ommend that the MOD thoroughly take into account issuessuch as access to technology and political disruptions beforeprocuring entire vessels from abroad. The UK governmentcould allow shipyards to consider outsourcing work to foreignsources when there is a need to reduce a labour peak, workersare not available elsewhere in the United Kingdom, and workerswould only be needed for a short period.

• Encourage long-term investment through multi-ship contracts. Mostnaval shipyards have not modernised facilities during the pastseveral years. Longer-term contracts will allow the shipyards tojustify this type of major investment. However, the experienceof US programmes has shown that multi-ship contracts workbest for mature designs. So, such an approach may not includethe first-of-class ship.

• Consider the feasibility of competition in light of industrial baseconstraints. Competition may not always yield better prices orresult in a balanced allocation of work under conditions inwhich there are high resource demands. In such an environ-ment, it is possible that there will be fewer potential bidders onsubsequent programmes, that bidders will take on more workthan is optimal, or that shipyards will be less inclined to cooper-ate for fear of losing a competitive advantage.

• Explore the advantages of common and/or compatible three-dimensional computer-assisted design/computer-aided manufactur-ing (CAD/CAM) design tools. The MOD might want to facilitatea discussion among shipbuilding firms (and potentially includethe CAD/CAM vendors) to explore whether they should adopta common or interoperable design tool or establish standards sothat design work can be easily interchanged.

xxxv

Acknowledgements

This report would not have been possible without the contributionsof many firms and individuals. First, we would like to thank AndyMcClelland, Andrew Stafford, and David Twitchin of the DPA forguiding and helping to coordinate the study within the agency. Wewould also like to thank Stephen Highfield, also of the DPA, for hisassistance and coordinating our interaction with the Pricing andForecast Group. The authors would like to acknowledge the ship-building IPT leaders and members who participated in this study andprovided insight to and data for their programmes. Our gratitudegoes to Stephen French, Director General—Equipment, and themarine Directors of Equipment Capability (DECs) for their views onthe future shipbuilding programme. Also of the DPA, we are gratefulto Rear Admiral Ric Cheadle for his insightful comments on an ear-lier version of this report.

At RAND, we would like to thank the reviewers, Robert Mur-phy and Irv Blickstein, for the many improvements and suggestionsthey made to the text. The authors would also like to acknowledgethe assistance of Nathan Tranquilli and Ricardo Basurto-Dávila fortheir help with data analysis and modelling. We also thank JoanMyers for coordinating the document preparation.

Finally, we are deeply indebted to the shipbuilders, marinefirms, contractors, suppliers, and associations that participated in thestudy survey and interviews. Without their assistance and coopera-tion, this research would not have been possible.

xxxvii

Abbreviations

AO afloat outfitting

BES Babcock Engineering Services

BMT British Maritime Technologies

CAD/CAM computer-assisted design/computer-aidedmanufacturing

CVF Future Aircraft Carrier

CVS Invincible-class carrier

DDG antiair defence

DDH Devonshire Dock Hall

DEC Director of Equipment Capability

DML Devonport Management Limited

DPA Defence Procurement Agency

DTI Department of Trade and Industry

ECC Equipment Capability Customer

FA final assembly

FSC Future Surface Combatant

FSL Fleet Support Limited

HVAC heating, ventilation, and air conditioning

IPT Integrated Project Team

JCA Joint Combat Aircraft

JCTS Joint Casualty Treatment Ship

xxxviii The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

KBR Kellogg-Brown and Root

LPD(R) landing platform dock (replacement)

LPH helicopter landing platform

LSD(A) Landing Ship Dock Auxiliary

MARS Military Afloat Reach and Sustainability

MOD Ministry of Defence

ONS Office of National Statistics

OPV offshore patrol vessel

OPV(H) Offshore Patrol Vessel–Helicopter

PFG Pricing and Forecast Group

RFA Royal Fleet Auxiliary

SEMTA Sector Skills Council for Science, Engineering, andManufacturing Technology

SRG Supplier Relations Group

SSN nuclear attack submarine

STOVL short take-off, vertical landing

VAR voluntary attrition rate

VT Vosper Thornycroft

1

CHAPTER ONE

Introduction

Between September 2003 and April 2004, RAND researchers ana-lysed the capability of the shipbuilding industrial base in the UnitedKingdom to meet the demands of current and future Ministry ofDefence (MOD) programmes. The MOD is in the early stages of anambitious effort to procure upwards of 50 naval ships and submarinesover the next two decades, and defence policymakers are seeking togain a fuller understanding of the ability of UK shipyards, workers,and suppliers to produce and deliver those vessels at the pace and inthe order planned by the MOD.

This analysis, done at the request of the MOD’s Defence Pro-curement Agency (DPA), focused on answering three fundamentalquestions: Can the existing shipbuilding industrial base expand tomeet future demands? Do problems exist with the numbers and typesof facilities or the numbers and skills of the workforce? and If futureproblems do exist, what can be done to alleviate them?

Relying both on public and proprietary data and on surveys ofgovernment and industry representatives, the analysis addressed thesequestions by examining the capacity of the UK industrial base’s cur-rent workforce and facilities, identifying demands for those resourcesduring the next two decades, and exploring options to address situa-tions in which future demands might exceed available capabilities.The study aimed to help MOD policymakers (1) gain an under-standing of the capacity of the United Kingdom’s naval shipbuildingindustrial base to successfully implement the MOD’s current acquisi-

2 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

tion plan, and (2) gauge how alternative acquisition requirements,programmes, and schedules might affect the capacity of that indus-trial base.

Warship Production Is a Unique Industry

The design and construction of warships1 is one of the more compli-cated weapon system engineering and manufacturing tasks that acountry can undertake. Warships require a complex integration ofcommunication, control, weapons, and sensors that must worktogether as a coherent system. These components, or subsystems, area mix of various technologies (e.g., electronics, mechanical systems,software). Oftentimes these technologies (particularly weapon sys-tems) are state of the art or are undergoing development at the time aprogramme begins.

Moreover, warships must generate power to operate these sys-tems and propel the ship. For surface ships, the method of powergeneration is typically gas turbines or diesel engines. Submarines gen-erate power from diesel engines or nuclear reactors. Similarly, aircraftcarriers can be conventionally or nuclear powered.

Warships must also be able to survive attack and protect its crewonboard. This protection ranges from the use of armour to systemsdesigned to isolate the crew from chemical, biological, and radiologi-cal attack. Much of the equipment is shock hardened or isolated fromblast shock. Some vessels also act as platforms for air vehicles, such asaircraft or helicopters.

Beyond their direct military mission capability, warships mustperform another set of functions: housing and feeding the hundredsof sailors (‘hotel’ functions). Warships also need to provide for thehealth of the crew and thus require medical facilities. All these capa-bilities must be sustained for up to several months, requiring a sig-____________1 For the purpose of discussion here, warship refers to a class of ship or submarine that isblue-water capable. That is, the ship can fulfil a role beyond coastal protection. Also, weinclude ships beyond the direct combatants, such as logistics ships.

Introduction 3

nificant amount of equipment and provision storage. These non-mission capabilities make warships unique compared with other mili-tary assets, such as tanks and aircraft.

To house all these functions and capabilities, warships must belarge weapon systems. For example, the crew size for a warship cannumber in the hundreds, and in some case thousands. These shipsweigh thousands of tonnes (displacement) and can reach lengths of afew hundred metres.

Given the size and complexity, manufacturing warships requiressubstantial design, engineering, management, testing, and productionresources. For even a modest vessel, the engineering and design work-forces can peak well in excess of 100 staff. Several engineering special-ties are involved in shipbuilding (e.g., electrical, mechanical, navalarchitecture). The design of modern naval ships is now done usingsophisticated three-dimensional computer-assisted design (CAD)tools. Thus, the design workforce must be highly skilled and edu-cated. Production also requires many proficient skills or trades, suchas electricians, welders, and painters. Testing these complex systemsalso requires commissioning and test specialists to verify functional-ity. For certain skills, it might take years to become proficient (e.g.,nuclear-qualified welders and commissioning engineers). The work-force for the production trades might peak in the thousands for atypical naval vessel.

The manufacture of warships also requires significant facilities.Shops and plate lines/steel fabrication facilities make componentparts and structure. Docks, slipways, piers, and cranes are used forassembly and integration activities. These facilities occupy large areasof land and must be water accessible (often the more valued realestate of any country). The facilities themselves are expensive to buildand maintain. Hence, shipbuilding is both a capital- and labour-intensive industry. As such, it cannot be developed or expandedwithout significant resources, planning effort, and a long lead time.

Another aspect to naval production is that it relies on a signifi-cant vendor base; these vendors supply products ranging from servicesto material and equipment. Painting services, modular unit (such asaccommodations) manufacturers, material suppliers, and sophisti-

4 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

cated weapon systems providers (such as fire control and sonar sys-tems) are examples of the diversity of the vendor base. Thus, theshipbuilding industrial base encompasses a much broader array offirms beyond just the shipyards.

Nations that maintain a significant navy (particularly one withexpeditionary capabilities) have established domestic industries thatare specialised in warship production.2 This fact contrasts with thecommercial shipbuilding industry, in which a small number of coun-tries dominate the production in a particular market segment (such ascruise ships or bulk containers).3 There are many reasons given as towhy a domestic naval shipbuilding capability might be desirable.4

Although not advocating for or against these reasons, we will brieflydiscuss the issue to illustrate the broader issues involved in navalacquisition.

One reason a domestic industry might be necessary is that cer-tain technologies, such as nuclear propulsion, are sensitive and there-fore difficult to obtain from outside sources. A second reason couldbe political, because most shipbuilding industries employ large num-bers of workers. Thus, politicians have a vested interest in preservinga healthy domestic industry. But politicians are not alone in theirinterest in protecting large employers (such as shipyards). Shipyardsin the United Kingdom are long-established firms with extensive his-tories, which makes them even more politically difficult to close.Also, warships are paid with public funds. It is argued that these pub-lic funds should be spent to support or stimulate the domestic econ-omy. A further argument given is security. By maintaining a domesticsource of production a country is better able to control informationabout the technologies and capabilities of its warships. A final reasongiven in favour of having a domestic industry is that it can tailor thewarships better to meet a country’s specific needs or operating doc-trine. In buying vessels overseas, governments may find it more diffi-____________2 Todd and Lindberg (1996).3 Birkler et al. (forthcoming).4 Todd and Lindberg (1996).

Introduction 5

cult to obtain customised ships or may be restricted to only standarddesigns.

Recent trends in foreign purchases of warships (from both theUnited Kingdom and other nations) suggest that design and possiblyfirst-of-class are purchased abroad and follow-on ships are manufac-tured domestically.5 For the United Kingdom, shipbuilding is alsotied to national pride, since its history of the industry goes back cen-turies. The UK empire grew, in large part, because of a strong navyand merchant fleet. Whatever the reason for favouring domestic pro-duction, maintaining a strong navy seems to be inexorably tied to adomestic shipbuilding industry.6

MOD Ship Programmes7

Over the next 15 years, the MOD is planning an extensive ship-building programme. During this period, the MOD will be enhanc-ing the capabilities of the fleet as well as renewing it. The MOD’sshipbuilding programme can be divided into two main categories:those programmes that have already passed through the MOD’s finalapprovals process (Main Gate) and are somewhere in the demonstra-tion and manufacture stage, and those programmes that have yet topass Main Gate but which the MOD anticipates will be built. Below,we will describe the programmes in both categories.

Of course, the future procurement programmes continue toevolve in line with the strategic environment, financial imperatives,industrial developments, and new opportunities. Any statement of____________5 For example, the Super Vita class for the Hellenic Navy, based on a VT design, is producedin Greece. See Birkler et al. (forthcoming) for more detail.6 There are, of course, global firms that do successfully export warships (e.g., some Germanmanufacturers). BAE and VT export design and production warships to countries such asMalaysia, Brunei, Oman, Qatar, and Greece; however, it is a smaller portion of their overallwork.7 The information for this section is extensively drawn from the DPA’s Web site on theagency’s current projects (http://www.mod.uk/dpa/ipt/index.html), the Royal Navy’s Website (http://www.royal-navy.mod.uk), and Royal Navy (2003).

6 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

the programmes themselves, the number of ships, and the timings arespeculative—particularly for the second category of programmes notyet past Main Gate. Thus, the reader must keep this caveat in mindwhen interpreting results.

Programmes Past Main Gate

As of the writing of this report, the following three programmes werein the design and production stage.

Astute-Class Attack Submarine. The Astute programme is a newnuclear attack submarine (SSN) intended to replace the existing Tra-falgar and Swiftsure classes. The tasks of the attack submarine arestated to be the following: support of the Vanguard class, antisubma-rine warfare, anti-surface warfare, surveillance and intelligence gath-ering, and land attack. Currently, three boats are on contract withBAE Systems, which is producing the boats at its facilities in Barrow.Additional submarines of the class may be procured—potentially upto six; however, the MOD has made no decision as to the numberbeyond the initial three vessels. The Astute class uses nuclear propul-sion and will displace approximately 7,800 metric tons (submerged).The crew complement is notionally 98 sailors. The length overall ofthe vessels is 97 metres with a beam of approximately 11 metres. Thevessels will be armed with Tomahawk cruise missiles and Spearfishtorpedoes.

Landing Platform Dock (Replacement)—LPD(R). The LPD(R) isa programme designated to replace the fleet’s amphibious capability.These replacement ships will provide landing capabilities for up toeight landing craft, which carry various combat vehicles and forces.The ships will displace approximately 18,500 metric tons (full load)and have a crew complement of 349 and an additional berthing capa-bility for up to 304 troops. The ships are also capable of having heli-copter operations from the flight deck; up to two medium-sized heli-copters can be accommodated. These ships will replace the fleet’s twoamphibious ships: HMS Fearless and HMS Intrepid. The first of theLPD(R) ships (HMS Albion) is already in service, and the second(HMS Bulwark) is expected to enter service in early 2005. The shipswere built at BAE’s facilities in Barrow. The length of the vessel is

Introduction 7

approximately 180 metres with a maximum beam of about 29metres.

Bay-Class Landing Ship Dock—LSD(A). These new vessels arepart of the Royal Fleet Auxiliary’s (RFA’s) rapid deployment force.These ships will replace the various landing ship logistic classes in theRFA fleet. The LSD(A)’s main role, as the designation implies, islogistic support by transport of troops, trucks, tanks, and cargo intobattle. The ships can also be used for humanitarian missions. Thedesign of the Bay class is a modification of the Dutch Rotterdam class.Swan Hunter and BAE Systems (Clyde Shipyards) are each produc-ing two vessels of the class. The ships have an approximate lengthoverall of 177 metres and a beam of 27 metres. The full displacementof the vessels is approximately 16,160 metric tons, and the crew sizeis approximately 60.

Type 45. The Type 45 is a multi-role destroyer whose principalmission is antiair defence (DDG). The first six ships of the class arecurrently on order, and there is a potential for up to six additionalships to be procured. BAE Systems Naval Ships (Clyde Shipyards) isthe prime contractor for the Type 45. VT Shipbuilding (Portsmouth)is a subcontractor on the programme. Each firm produces specificblocks for all the ships in the class, which are subsequently assembledat BAE’s Clyde Shipyards. The main weapon system on the ship, thePrincipal Anti-Air Missile System, is being jointly developed with theFrench and Italian navies. The ships could also be fitted with cruisemissiles and a 155-millimetre gun, but currently there is no require-ment for either system. The Type 45 ships are notionally replacingthe current Type 42 class. With approximate length overall of 152metres and a beam of 21 metres, the Type 45 displaces 7,350 metrictons. The crew complement is about 190.

Projects Pre–Main Gate8

Beyond the projects listed above, there are several programmes in theconceptual planning phase that have yet to pass through Main Gate____________8 Main Gate approval is the point at which DPA authorises a programme to proceed to thedemonstration and manufacturing stage.

8 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

approval. As such, there is little that can be said definitively of eitherthe ship characteristics of or the contractors involved in these pro-grammes.

Future Aircraft Carrier (CVF). The CVF is the Royal Navy’s nextgeneration of aircraft carrier and is meant to replace the currentInvincible-class (CVS) carriers. The ships will be considerably largerthan previous UK aircraft carriers and potentially larger than any shipproduced for the Royal Navy in decades. The size is a result of thedesire to support an enhanced strike capability over the existing CVSclass. Two CVF class ships will be produced. The base design of theCVF is configured for short take-off, vertical landing (STOVL) air-craft operation but can be adapted to conventional flight operationsshould such a requirement materialise or the Royal Navy employ dif-ferent aircraft. These ships will carry a mix of F-35 aircraft (JointCombat Aircraft [JCA] STOVL variant) and helicopters.

The MOD has announced that it intends to deliver the CVFthrough an alliance approach comprising BAE Systems, Thales UK,and the MOD. The contracting arrangements have yet to be final-ised. BAE and Thales UK have formed the Aircraft Carrier Team totake the programme through the assessment phase leading up toMain Gate. Although the shipbuilding strategy continues to evolve, itis likely that multiple shipyards will be involved with CVF produc-tion, given its size and complexity. The planned in-service date forthe first CVF is 2012. No crew size has been stated for the ship.

Future Surface Combatant (FSC). An Integrated Project Team(IPT) has recently been formed for the FSC programme. The ship isnotionally thought to be frigate-sized vessel and will replace the Type23s and Type 22s currently in the fleet. The FSC requirements arestated as a multi-role/adaptable ship capable of surface and submarinedefence, shore support, homeland defence, marine interdiction, andshore forces deployment. Early concepts are exploring both monohulland trimaran hull forms.

Joint Casualty Treatment Ship (JCTS). The JCTS is a single shipprogramme that will provide advanced medical capabilities to allthree UK services. The ship can be used for combat operation sup-port as well as humanitarian missions. As a ‘grey hull’ and therefore

Introduction 9

designated to operate within a task force, the ship will not be subjectto the Geneva Conventions as would a conventional hospital ship.The JCTS will represent a significant enhancement of the capabilitiesover the aviation training ship RFA Argus, which it replaces. Accord-ing to the DPA’s Web site, ‘Subject to further study, the total JCTSrequirement is expected to be 8 operating tables and not less than 150beds (expressed as >150)’.9 The JCTS will also have a flight deckcapable of handling two helicopters. There is currently no in-servicedate stated for the ship.

Military Afloat Reach and Sustainability (MARS). The MARSprogramme is a series of ships (number and types currently un-defined) that will provide supplies to the fleet and forces ashore.These supplies include a combination of dry goods and provisions,general stores, water, ammunition, and fuel products. The ships arethought to have a multi-commodity capability (i.e., the ability tocarry more than one type of cargo). However, this capability is sub-ject to change. The series of MARS ships will replace the RFA tank-ers, AORs (Auxiliary Oiler Replenishments), and AFSHs (AuxiliaryFleet Support Helicopters). Compared with existing ships, MARSships will be double-hulled tankers, making them compliant with EUshipping regulations. The MARS programme will also provide a vari-ant configuration for use as a sea base.

Offshore Patrol Vessel Helicopter (OPV[H]). The Royal Navy hasprovisional plans to replace the Castle class of offshore patrol vessels,now in use in the Falkland Islands, with OPV(H)s. These new shipswill have the ability to operate helicopters and will be leased on asimilar basis as used with River-class patrol vessels.

Other Speculative Programmes

Beyond the programmes currently being run by IPTs, two other pro-grammes might be undertaken during the period we explore. Thefirst is a new submarine (called Future Submarine) that the RANDteam assumed to be of the size of a Vanguard-class submarine. The____________9 www.mod.uk/dpa/ipt/jcts.html (last accessed November 2004).

10 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

second would be a replacement of the minehunter capability. For thisprogramme, the team assumed that the ship would be a modifiedFSC.

Notional Programme Timelines

Figure 1.1 displays an illustrative, high-level timeline in Gantt formatfor the design and production of the future programmes as describedabove. The blue bars represent the programme (or portions of pro-grammes) that are past Main Gate and are on contract. The grey barsrepresent the programmes that are either pre–Main Gate or potentialadditional procurements for the class that have not been contracted.The timings are a synthesis of our assumptions, data provided by theIPTs, and data provided by the shipyards. The dates are representa-tive only and are not fixed as certain or are specific requirements fromEquipment Capability Customers (ECCs).

Figure 1.1Gantt Chart of MOD Naval Programmes over the Next 15 Years

RAND MG294-1 .1

2005 2010 2015 2020

LSD(A)

Type 45

OPV(H)

CVF

Astute

JCTS

MARS

FSC

Future Submarine

Future Minehunter

On Contract Prospective

Year

Introduction 11

It is worthwhile to note that there will be periods when therecould be up to six programmes in various stages of design and con-struction. This level contrasts the three that are on contract as of early2004. Not only will there be increased concurrency, but these shipsproduced will be the largest of their type built in quite some time.Take 2010 as an example. The Type 45, CVF, Astute, JCTS, MARS,and FSC programmes will all be under way at the same time. How-ever, not all these programmes will be in production. The FSC, forexample, will likely be in its design phase in 2010. However, theperiod between 2007 and 2013 is much busier for shipbuilding thanhas been seen recently.

The implication for such a build plan is that the MOD willradically transform its fleet by 2020. Table 1.1 shows an estimate forthe average age and size of the fleet in 2004 and 2020. For the sake ofconsistency, the data exclude the Antarctic patrol, training, and repairvessels, inasmuch as it is uncertain whether the MOD will replacethese vessels. The table shows that the average age drops from about16 years to 12.5 years. Furthermore, the average displacement weightincreases by more than 40 percent. Thus, the MOD will haveyounger (27 percent) and larger (48 percent) vessels in the fleet by2020 than it does today.

Table 1.1Average Age and Full Ship Displacement of the Fleet

Calendar YearAverage Age

(years)Average, Full Displacement

(metric tons)

2004 15.9 9,2002020 12.5 13,600

12 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Business Environment of UK Naval ShipbuildingIndustrial Base Since 1985

The ability of the UK shipbuilding industry to accommodate thesefuture plans of the MOD is constrained by the history of naval ship-building of the past few decades. The end of the Cold War resulted ina profound reduction in naval shipbuilding for the United Kingdomas requirements lessened and the country sought to capitalise on the‘peace dividend’. Figure 1.2 shows how the Royal Navy combatantfleet has shrunk over the past three decades. There has been a steadydecline in the fleet size since 1970: In 2000, the combatant fleet wasabout 60 percent of its 1970 size.

Figure 1.2Royal Navy Fleet Size over the Past Four Decades

Nu

mb

er o

f sh

ips

SOURCE: Hill, 2002.RAND MG294-1.2

200

1990

Year

19801970 20000

160

120

80

40

Minehunters and coastal craftConventional attack submarinesNuclear attack submarinesBallistic missile submarinesDestoyers/frigatesCruisersLarge amphibious shipsAircraft carriers

Introduction 13

This decline in the fleet size has also resulted in fewer neworders. In 1970, the fleet size of the combatant force was 184 ships. Ifthe average ship lasts 30 years, then about six new ships would havebeen needed to be brought into the fleet each year to maintain thetotal fleet size. This value, of course, assumes that the fleet age is uni-formly distributed. In 2000, the corresponding annual replacementrate would be about 3.5 ships per year. In fact, these crude approxi-mations correspond quite well to the actual ship delivery history overthis period. Figure 1.3 shows the annual delivery of combatantsbetween 1970 and 2000. In the 1970s, the number of ships deliveredper year ranged between four and seven. By the late 1990s, the num-ber of ships delivered each year dropped to between zero and four.

Figure 1.3Number of Combatants Delivered Each Year

Nu

mb

er o

f sh

ips

del

iver

ed

RAND MG294-1.3

8

0

7

Year

6

5

4

3

2

1

SOURCE: Colton Company, www.coltoncompany.com.

’70 ’72 ’74 ’76 ’78 ’80 ’82 ’84 ’86 ’88 ’90 ’92 ’94 ’96 ’98 ’00

14 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

The consequence of decreasing ship orders has been a series ofclosures and consolidations of naval shipbuilders over this period.Figure 1.4 shows a simplistic timeline for the shipbuilders involved innaval and government orders post-privatisation (in the 1970s and1980s, all the shipyards were nationalised by the UK government andrun as part of British Shipbuilders10). It should be noted that the fig-ure does not show a complete history of the industry. Hall Russelland Brooke Marine produced MOD ships but went into receivershipin 1988 and 1986, respectively. There were also many other commer-cial shipbuilding firms that were part of British Shipbuilders, e.g.,Austin Pickersgill, Doxford and Sunderland, Robb Caledon, ScottLithgow, and Upper Clyde Shipbuilders (excluding Govan). Few ofthese firms survive today.

In Figure 1.4, each solid line starts when a shipyard was priva-tised. If the shipyard subsequently went into receivership, the arrowends with an ‘X’ at that point in time. A dotted line represents afacility that was used for or converted to ship repair work only.Mergers are shown as arrows joining.

There are many excellent histories of the UK shipbuildingindustry;11 our intent here is not to provide a detailed or comprehen-sive history but merely context for the reader. In the mid-1980s, theBritish government decided to divest itself from the shipbuildingbusiness and began to re-privatise the shipyards. From 1985 to 1990,designated shipyards were sold off. Coincidently, this period also cor-responded to the time when naval ship orders began to decline. Atthe start of privatisation, the naval shipbuilders were, for the mostpart, profitable.12 Soon after the privatisation finished, the bottomfell out of the market and these shipyards struggled to survive. Therewere too many shipyards chasing too few programmes. The intense

____________10 The exception was Harland and Wolff, which was government owned but not part of Bri-tish Shipbuilders.11 See for example, Johnman and Murphy (2002), Jamieson (2003), Burton (1994), Wink-lareth (2000), Owen (1999), and Walker (2001).12 Johnman and Murphy (2002).

Introduction 15

Figure 1.4History of Naval Shipbuilders Post-Privatisation

RAND MG294-1.4

1985 1990 1995Year

2000 2005

Govan

Scotstoun

Barrow

Cammel Laird

Ferguson (Port Glasgow)

Appledore

VT

Swan Hunter

Harland and Wolff

X X

XVT Group

BAEMarine

Yarrow

Kvaerner

GECGEC/Marconi

BAE ShipsandSubs

X = Receivership

VSEL

DML

= Active = Repair only

competition that ensued during this period—driven by the MODpolicy to compete work—led to very low bids from firms that weresimply looking to fill their yards with work. In fact, some havespeculated that the bids were, on occasion, below cost.13 Althoughthis situation may have led to better prices for the MOD, it left theshipyards in a vulnerable state. Certainly, there was little investment,modernisation, or upgrades in the shipyards during this period.

Despite occasional government intervention into the competi-tive process, Cammel Laird, Appledore, and Swan Hunter shipyardsall went into receivership between 1990 and 2004. Some did reopenlater. Swan Hunter was reopened and is now the lead shipyard for thenew LSD(A) class, and Appledore has been recently purchased byDevonport Management Limited (DML). Harland and Wolff re-structured its business in 2002 and is now focusing on ship repair.____________13 Johnman and Murphy (2002).

16 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

However, it does retain design capabilities and works with other ship-builders (e.g., NASSCO in the United States). However, its employ-ment levels are greatly reduced from when it was an active ship-builder.

Other shipyards were consolidated under single ownership.GEC/Marconi consolidated the Barrow and Scotstoun shipyards,which were later sold to BAE Systems. The Govan shipyard was ini-tially acquired by Kvaerner, then sold to GEC/Marconi, and latersold to BAE Systems. By 2004, three major naval shipbuilders wereleft: BAE Systems, Swan Hunter, and VT Shipbuilding. FergusonShipbuilders is also active but focusing more on the coastal patrol,fishery protection, ferries, and other commercial markets. Fergusoncould potentially become involved as a producer for future MODprogrammes (as either a builder of smaller ships such as the OPV(H)or a producer of blocks or modules on the larger ship programmes).

Issues for Policymakers

The significant future building programme combined with a dimin-ished industrial base raises a number of questions for defence policy-makers:

• Is the MOD shipbuilding plan feasible given the constraints ofthe industrial base?

• What is the programme’s effect on the shipbuilders and shiprepairers?

• Is the supplier base robust enough to meet the demand?• Are there alternative timings for programmes that make the plan

more robust?• If procurement quantities change, what will be the effect?

In the autumn of 2003, RAND was asked to address these questions.The analysis described in this report is the documentation of thatstudy. The main goal of this study was to understand the capacity of

Introduction 17

the UK naval shipbuilding industrial base and its ability to undertakethe MOD’s shipbuilding programme over the next 15 years.

There are two issues not addressed in this document: theaffordability of the shipbuilding plan and whether the plan meets thecustomers’ requirements. By affordability, we mean the ability of thegovernment or the DPA to budget for ship acquisitions. An increasein procurement activity will need, generally, to be supported by anincrease in funding. By customers’ requirements, we mean the abilityto meet the operational needs in terms of both timing and capability.The scope of this study was to look at issues from an industrial per-spective and not from a funding, political, or an operational needsperspective. However, any long-term plan will need to balance theseissues with the industrial base ones.

Study Structure

Assessing the capacity of the entire naval shipbuilding industry is avery complicated problem. As discussed earlier, there are many firmsinvolved in the industry, ranging from very large conglomerates tosmall businesses with fewer than 50 employees. These firms serve asprime contractors, shipbuilders, ship repairers, equipment suppliers,service providers, and designers and architects. Therefore, a completeanalysis must touch on the spectrum of firms involved. Furthermore,capacity to manufacture cannot simply be stated in simple terms,such as a specific number of ships per year. Production capacity verymuch depends on both the types of ships produced and the buildstrategy employed. For example, a much higher rate of frigate pro-duction is possible compared with the rate for aircraft carriers at agiven facility.

To analyse the issues the MOD faces, we decomposed thecapacity evaluation into a supply and demand assessment in three dis-tinct areas: labour, facilities, and suppliers. Figure 1.5 (the study’shierarchy) shows that a specific shipbuilding plan results in a series ofdemands on the industry. Although each area is, to a certain extent,

18 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Figure 1.5Study Hierarchy

RAND MG294-1.5

Plan

Demand

Facilities

Labour Suppliers

independent, each area is connected to the plan. If one area has in-sufficient capacity, the plan becomes problematic. Often the result ofinsufficient capacity are schedule delays and cost increases.

Plan

The plan is the ‘who, what, and when’ of the shipbuilding pro-gramme. As described earlier, many of the programmes are in theearly stages of definition and planning (pre–Main Gate). Therefore, itis not possible to have a conclusive allocation of work to the ship-yards, schedule of activities, and set of requirements.

So rather than focusing on a single future, we will present severalalternative plans. Each plan will be defined in greater detail in thesubsequent chapters. Having several alternatives will make the studymore robust as MOD plans evolve. Having alternative futures alsowill highlight sensitivities of various assumptions. The study will useas its baseline the ‘current plan’, which assumes that everything isbuilt as envisioned by the IPTs and Equipment Capability Customers(ECCs). Another plan that we will explore is one in which funding or

Introduction 19

requirements decrease such that fewer vessels are purchased (pessimis-tic funding). We also examine the plan in which requirements orfunding increase (optimistic funding). We will examine the scenariowhere a new, large submarine (similar sized to the Vanguard class) isdesigned and built. In addition, we will present a plan in which tim-ings are stretched out (level-loading).14

Labour

The demand for labour is viewed, at least by the shipyards, as themost critical issue they face in meeting the MOD’s plans over thenext several years. From a labour perspective, policymakers need tounderstand both what labour is required and what labour is available.However, labour is not a static commodity: Workers retire; appren-tices enter the workforce; workers change employers; etc. Thus, it iscrucial to understand the dynamic of how demand and supply oflabour evolve over the next several years. To address the complexissues of labour, the study team split the analysis into two parts.Chapter Two will examine the demand for labour under the differentplans described above. Chapter Three will examine the supply oflabour and whether it matches the demand.

Facilities

As described at the beginning of this section, shipbuilding requiressubstantial facilities, which are expensive to create and are generallyspread over a large footprint. Hence, expanding or upgrading facili-ties cannot be done quickly. Thus, in addition to labour, decision-makers will need to understand the availability of facilities to meetthe demand for shops, piers, and docks. Chapter Four will look at theanalysis on these last two types: docks and piers.

Suppliers

More than half the value (unit cost) of a naval vessel is provided byfirms other than the shipbuilder.15 So the ability of suppliers to meet____________14 One further scenario is presented in Appendix A on the implications of programme delay.15 The Clyde Shipyards Task Force Report (2002, p. 41).

20 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

the demand based on the MOD’s plans is an important considerationin addressing the UK industry’s capacity. Chapter Five explores sup-plier issues such as stability, diversity of business, and ability to meetincreased demand.

Survey of the UK Shipbuilding Industry

Doing an encompassing study such as this entails interviewing andsurveying a great number of firms and groups. The MOD andRAND agreed to a list of firms to contact. Some of these firms chosenot to take part in the study. Those that did participate were

• AMEC• Atkins Global• BAE Systems (Naval Ships and Submarines)• Babcock Engineering Services (BES)• British Maritime Technologies (BMT)• Devonport Management Limited• Ferguson Shipbuilders• Fleet Support Limited (FSL)• Kellogg-Brown and Root (KBR) Caledonia• Swan Hunter• Thales UK• VT Shipbuilding.

The RAND team sent surveys to each of these firms requestinginformation on their employment, future workload demands, facili-ties available, and their key suppliers. The team then did follow-upinterviews with the firms to clarify the data and to discuss any issuesof importance that were not covered by the surveys.

The study team next contacted the key suppliers that the firmshad identified. (The shipyards identified more than 200 suppliers,which will not be listed here because of space limitations.) The teamsent a separate survey to these suppliers asking them about theiremployment, relative competitiveness of their market, their depend-

Introduction 21

ence on MOD and maritime work, and the challenges they will facein the future. There were occasional follow-on conversations with thesuppliers that did return the survey—mostly for clarification.

In addition, the RAND team interacted with a number ofindustry associations:

• Furness Enterprise Limited• Highlands and Islands Enterprise• Northwest Development Agency• Scottish Enterprises• Sector Skills Council for Science, Engineering, and Manufac-

turing Technology (SEMTA)• Society for Maritime Industries (SMI)• Shipbuilders & Shiprepairers Association (SSA).

Finally, the team corresponded with several government agen-cies:

• Department of Trade and Industry (DTI)• DPA

–All Naval IPTs–Future Business Group (FBG)–Pricing and Forecast Group (PFG)–Sea Technologies/Quality Group–Supplier Relations Group (SRG)

• MOD Directors of Equipment Capability (DECs).

These government interactions mainly involved interviews and therequest for specific data. For example, the PFG provided notionalproduction hours for pre–Main Gate programmes. Each IPT pro-vided notional timings for its specific programme.

Study Outline

We divide the report into seven chapters. Chapter Two discusseslabour demand issues. Chapter Three examines labour supply and the

22 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

ability to meet the demand. Chapter Four analyses the facility impli-cations of the various plans. Chapter Five describes and discusses thesuppliers. Chapter Six explores the resources available at medium-sized shipbuilders and commercial firms. Chapter Seven summarisesthe study and lists issues (beyond capacity) for the MOD to consideras it defines the shipbuilding strategy for the United Kingdom.Lastly, Appendix A shows how schedule slippage affects MOD labourdemands; Appendix B provides a short reference of ship dimensions;and Appendix C breaks out skills by management/technical andmanufacturing categories.

23

CHAPTER TWO

Labour Demand

In this chapter, we take a closer look at the labour demand that theMOD’s current and future shipbuilding programme will place on theshipbuilding industrial base. Although issues concerning the currentshipbuilding skill base and facilities will be examined in later chap-ters, it is critical for the MOD to clearly understand both how muchand what types of demand it may place on the industrial base throughits planned shipbuilding programme. A proper understanding of thisimpact is key in determining whether existing resources will be ableto meet the projected workload under the appropriate timelines.

Because many of the MOD’s future programmes have not beenspecifically defined, it is necessary to develop projections that willallow us to estimate and assess the impact of these programmes on theindustrial base. Over the next several pages, we will lay out the meth-odology we developed to assess future MOD-generated labourdemand, explain the basic data we used to assess this demand, andpresent the assumptions we used in our demand estimates. After pre-senting the results of our examination of the MOD’s current acquisi-tion plan and its implications for the industrial base, we will alsobriefly examine a number of alternative scenarios. Finally, we willconsider ways in which the MOD could attempt to level futuredemand to make it easier for the industrial base to cope.

24 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Methodology

The goal of our labour projection model is to estimate future labourdemands for the MOD’s shipbuilding programme. To do that, wefollowed a straightforward process. First, we developed a labour pro-jection model that would allow us to estimate future demand. Sec-ond, we made a set of basic assumptions concerning the future MODshipbuilding programme, including the timing and number of shipsin a particular planned class (e.g., CVF, MARS, FSC). Third, wecollected data about these programmes and populated our labourprojection model with that information. Finally, we ran the model toproduce a number of estimates concerning the future labour demandplaced by MOD programmes. Because the future naval procurementplan is flexible and open to change, we also ran a number of otherscenarios to look at the robustness of our projections. The first step inour methodology was to develop a model that can accurately forecastfuture labour demands.

The model used to project future MOD labour demandrequired a number of inputs. We show the model’s general formula-tion in Figure 2.1.

Figure 2.1RAND’s Basic Labour Forecasting Model

Labourprofiles

Ship buildduration

Shipyardlearning

Ship classinformation

Specificbuild dates

Shipyard(s)selection

Ship buildhours

Specific shiplabour demand

RAND MG294-2.1

Labour Demand 25

The forecasting model requires data at a number of differentlevels. First, there is specific information associated with each shipclass (e.g., Type 45 or CVF). Such class-specific information includes:

• Labour profiles. These profiles represent the distribution oflabour required to build and design a ship over time. Althoughthere may be a generic labour profile required for the overallproduction of a ship, it is also possible to estimate labour pro-files for the individual skill trade areas associated with building aship. In our model, we developed labour profiles unique to skilltrade categories (which we will define later in this chapter).

• Ship build hours. These are the total number of direct workerhours required to complete a ship, which can be further brokendown by individual skill trade areas (i.e., management, techni-cal, structural, support, and outfitting).

• Ship build duration. This duration represents the total amount oftime needed to actually build a ship. At this point in the model-ling process, we did not identify specific start or stop dates forship design or production, but instead made a general estimateof the overall block of time needed to build the ship (e.g., 10quarters).

• Learning curves. These curves represent the labour hoursrequired over time as more ships of the same class are produced.This improvement can come through increased labour profi-ciency, process innovation, or some combination of the two.Typical unit learning curve slopes1 for shipbuilding range from0.87 to 0.93, and we used different learning curves dependingon the ship class under consideration.

Past RAND studies have used this direct labour estimationmodel to look at overall labour demand. However, for this study, we____________1 By unit learning curve slope, we mean the rate of improvement each time the productiondoubles. A 0.95 slope, for example, means that the hours decrease by 5 percent each time theproduction unit doubles. It is a nonlinear improvement, getting smaller as the productionquantity increases. See Arena, Schank, and Abbott (2004) for more details.

26 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

broke down overall labour into more definitive categories so that itwould be possible to analyse labour demand at each of these levels.The five categories of labour skill levels we looked at were:

• Management: general management, administration, marketing,and purchasing

• Technical: design, drafting, engineering, planning, and projectcontrol

• Structural: steelworking, structural welding, shipwright, etc.• Outfitting: electrical; joinery; heating, ventilation, and air condi-

tioning (HVAC); insulation; painting; etc.• Support: rigging, scaffolding, storekeeping, cleaning, etc.

Appendix C details a more exhaustive list of specific skills thatwe included in the general skill trades.

It is also important to note that the labour estimation modelprojects only direct labour and does not account for overheads thatwill be unique to individual shipyards, prime contractors, and designfirms. For our purposes, we define direct labour as labour specificallycharged to a particular project by industry.

Thus for an individual ship class, it would then be possible tocreate representative, time-independent labour profiles for the num-ber of direct workers required to design and produce a ship over time.We present a notional example of such profiles in Figure 2.2.

However, to convert these notional labour projections into anactual estimate, two other important pieces of ship-specific informa-tion are required: specific start and end dates for production need tobe defined, and a specific shipyard(s) must be selected to actuallydesign and produce the vessel. Only when these two steps are com-pleted will the nominal labour projection shown in Figure 2.2 be use-ful in estimating future labour demand for a specific naval vessel.

In our model, we made estimates for both these pieces of infor-mation. (We cover the specific information later in this chapter.)

Labour Demand 27

Figure 2.2Example of Direct Labour Distribution Curves for an Individual Ship Class

RAND MG294-2.2

Wo

rker

s

First-of-class

Follow-on

0 20 40 60 80 100

Months

As estimates are made for each future ship for the Royal Navy, itbecomes possible to aggregate these individual estimates to come upwith an overall labour estimate for the entire MOD shipbuildingprogramme. As mentioned before, these labour estimate aggregationscan then be analysed at either a programme, skill trade, or shipyardlevel. We provide a visual representation of this aggregation in Figure2.3.

Basic Assumptions

To apply this basic model of direct labour estimation to the MOD’scurrent and future shipbuilding programme, we needed to makeassumptions about what that programme may look like. In additionto making assumptions about the general characteristics of each

28 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Figure 2.3Individual Ship Aggregation to Represent Entire Shipbuilding Programme

Labourprofiles

Ship buildduration

Shipyardlearning

Ship classinformation

Specificbuild dates

Shipyard(s)selection

Ship buildhours

Specific shiplabour demand

Total buildlabour demand

RAND MG294-2.3

future Royal Navy ship class (build duration, build hours, etc.), wealso needed to estimate the number of ships in each class and thetimings of the design and build for each specific ship.

Recognising that it would be difficult to accurately project allthis information, we defined one set of assumptions as our currentMOD plan, but then ran a number of alternative scenarios to under-stand the labour demand impacts of programme variations. In thecurrent MOD plan, we included all MOD ships currently being builtas well as estimates for future ships likely to be built. Additionally, weincluded some ship repair/refit projections (as envisioned by therepair yards) so that the MOD could consider the impact of its repairand refit programme on its new-build programme.

The current MOD programmes considered in our analysis were

• Type 45: the first six ships• Astute: the first three submarines• LSD(A)• LPD(R).

Labour Demand 29

These ships are currently on contract, are or have been designed,or are in production. We provide a summary of their projected statusin Table 2.1.

Of the future MOD programmes, we included

• Astute (the fourth submarine and beyond)• CVF• Future Minehunter• OPV(H)• FSC• JCTS• MARS• Type 45 (the seventh ship and beyond).

We had to make assumptions regarding both the number ofships in each class and the time period for the design and productionof each class (Table 2.2).

Table 2.1Current MOD Shipbuilding Programmes

Programme Class Size Design/Build Duration

LPD(R) 2 Through 2004

LSD(A) 4 Through 2006

Type 45 6 Through 2010

Astute 3 Through 2011

Table 2.2Projected MOD Shipbuilding Programmes

Programme

Class Size(on contract,additional)

Design/Build Duration(from 2004)

OPV(H) 0,2 2004–2006

JCTS 0,1 2006–2010

CVF 0,2 2004–2015

Astute 3,4 (7 total) 2005–2018

Type 45 6,3 (9 total) 2004–2012

MARS 0,10 2007–2020

FSC/Future Minehunter 0,14/4 2007–2023

30 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

We independently made a number of additional assumptionsabout how each ship would be built (modular build, split-locationproduction, etc.) and where it would be built after discussions withMOD officials (IPTs, other DPA staff, and ECC representatives),design firms, shipbuilders, and other stakeholders. They represent areasonable, but not definitive, projection as to what the future MODshipbuilding programme could look like. Because the shipbuildingprogramme may change over time, we look at a number of alternativeshipbuilding projections later in this chapter to show the impact tothe industrial base of changing assumptions.

Although the information presented in Table 2.2 outlines ourbaseline assumptions regarding the MOD’s future shipbuilding pro-gramme, it is appropriate to discuss each programme briefly to out-line further ship class-specific assumptions.

• OPV(H). We assumed that these ships would be of the same sizeas the River-class OPVs and would be built as whole ships in onelocation using traditional shipbuilding methods.

• JCTS. We assumed that the JCTS would be of slightly larger sizethan the LSD(A) ships currently in production and would bebuilt using similar methods, with the entire ship being built inone location.

• CVF. We based our assumptions for the CVF on a traditionalmodular production plan in which large blocks of the carrierwould be constructed at several shipyards around the UnitedKingdom, eventually being transported to a final site for assem-bly and integration.

• Astute. We assumed that these submarines would be built usingthe same production methods as the first three in the class, butthat there would be incremental upgrades applied for the fourthsubmarine and beyond that would slightly increase requiredlabour as well as lead to additional nonrecurring design work forthe fourth Astute.

• MARS. We assumed that the MARS programme would encom-pass 10 ships, which would be further broken down into smallerclass groups. The exact number and size of each group has not

Labour Demand 31

yet been determined, but our assumptions took into account themost-current thinking of the IPT that the displacement of eachclass would vary but would be largely in line with the size of cur-rent RFA supply ships. We also assumed that an individualMARS hull would be built in one location, but that multiplelocations would produce hulls.

• Type 45. We assumed that future Type 45 destroyers would bebuilt in the same modular way as the current batch with no sig-nificant capability upgrade in the last batch of ships.

• FSC. Although there are a number of potential designs beingconsidered for the FSC, we assumed that the ship would be amono-hull, steel structure, which is similar in size to the currentType 23 fleet. We further assumed that the individual shipswould be constructed at a single location.

• Future Minehunter. We made a deliberate assumption that theFuture Minehunter would not be like the current fleet of mine-hunters but would instead operate as a central platform withremote unmanned underwater vehicles responsible for minedetection. This assumption reduced the number of platformsrequired. For simplicity, we assumed that this platform wouldbe of the same basic form as the FSC and would be constructedin the same way.

Additional Assumptions

In addition to the assumptions above, we considered projected MODrepair/refit work in our labour projections, which were based oninformation received from the three warship repair/refit yards and theMOD. We also included projections for both non-MOD work(shipbuilding-related or not) and military export orders, where wejudged the probability of success to be reasonable. Our refit workestimates included labour demand estimates from two of the threemajor MOD refit yards.2

____________2 The third major refit yard provided us with general employment data and met with us todiscuss its plans, but it declined to provide future labour projections because of economicsensitivities. However, we are confident that our refit labour projections captured the

32 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

There were a number of potential MOD programmes that wedid not include in our analysis. We assumed these ships would not benew-builds and either may not be replaced by the MOD as they leaveservice or would be taken up from trade and refitted (and thus wouldnot tax the shipbuilding industrial base). The most high-profile shipsthat we assumed would not be new-builds and did not include in ouranalysis were the following:

• RFA Argus (training flight deck role). The medical role of theArgus will be taken up by the JCTS. We assumed that the airtraining role of the ship would either be replaced by simulation,taken up by current ships in the fleet, or some combination ofthe two.

• RFA Diligence. We assumed that a replacement for this vesselwould be taken up from trade and refitted.

• Additional helicopter landing platform (LPH). Should an addi-tional LPH be required, we assumed the one of the CVS vesselswould get a refit/life extension to fill this role.

• Landing craft. Although a number of these small craft may bereplaced, they place a negligible load on the industrial base, andthus we did not model their demand.

Once we had defined our model and assumptions, we collecteda wide variety of data to populate it and produce the results. The datawe needed roughly corresponded with the model inputs defined ear-lier in this chapter. To collect these data, we went to a variety ofsources, including traditional military shipbuilders and ship repairers,commercial shipbuilding firms, naval prime contractors, designhouses, offshore marine firms, and trade associations. Where appro-priate, we followed up with a visit to the firm. We also visited withindividual shipbuilding IPTs, their customers in the ECC, and theDPA’s SRG and PFG. At times, the data we received were inconsis-______________________________________________________majority of future refit demand and that the absence of data from the third major refit yarddid not affect any future MOD refit demand trends (which show a general decrease as thefleet size shrinks).

Labour Demand 33

tent, and we were required to seek further clarifications and makeinformed judgements to reconcile them. Additionally, because someof the programmes surmised are still in the concept or preconceptphase of the acquisition cycle, our estimates for these programmeswill be open for further refinement as more information about themis made more concrete.

Current MOD Plan: Overall Labour Demand

Figure 2.4 shows the expected direct labour demand that the MOD’sshipbuilding programme will place on the United Kingdom’s indus-trial base over the next 20 years, based on our assumptions and thedata we collected.

Figure 2.4Future MOD Labour Demand, by Programme

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34 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

As the figure shows, the MOD’s labour demand at the begin-ning of 2004 is slightly more than 10,000 direct workers. Thisdemand comes from four major programmes (Type 45, LSD[A],LPD[R], and Astute) as well as refit work. This future demand willdecrease slightly as the LSD(A) and LPD(R) programmes end, tem-porarily dropping to slightly more than 9,600 workers in early 2005.However, as further MOD programmes begin to move into theirdesign and production phases, demand will increase significantly.This increase is largely a result of the CVF programme, but it alsotakes into account JCTS design and production, MARS design, andFSC design. As the MARS programme begins to move into full pro-duction, demand will peak at slightly more than 16,000 direct work-ers at the end of 2008. At peak, four major programmes—Type 45,MARS, CVF, and Astute—will be in production, and the JCTS andFSC programmes will also be placing additional labour demands onthe industrial base. After this peak, labour demands remain above14,000 workers through 2010, whereupon production on the firstCVF will begin to decrease, which will lead to a steep drop in labourdemand. Still, overall labour demand will continue to average close toor above 12,000 direct workers through 2015, when the MARS pro-gramme begins to wind down. At this point, the only major MODprogrammes still in production (other than refit work) will be MARS,FSC, and Astute. Once the MOD’s labour demand drops below12,000 direct workers, it will steadily decline into the future. It ispossible that the MOD may embark on additional shipbuilding pro-grammes during the 2015–2020 time frame, but we considered thispossibility unlikely (except for a potential Future Submarine that wetake into account in an alternative scenario later in this section).

Concerning the global outlook of these demand requirements,the MOD’s future programmes will increase their demand on theindustrial base by more than 50 percent above current MODdemand. This increased demand takes place over a five-year period,with a longer period following when the demand will decline moresteadily.

Labour Demand 35

Current MOD Plan: Demand for Specific Labour Skills

It is also possible to look at future demand placed on the industrialbase at the general skill levels defined earlier in this chapter. An analy-sis at this level will allow the MOD to better understand the specificimpacts as different skills demands stress the industrial base at differ-ent times.3

Management Labour Skills

First, we consider the demands placed on management skills. Figure2.5 shows the projected management skill level demands placed onthe industrial base by the current MOD ship procurement plan.

Figure 2.5Future MOD Labour Demand for Management Skills, 2004–2025

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____________3 For example, for an individual ship, structural skills are generally required earlier in theproduction cycle than outfitting skills are. Additionally, technical skill requirements will beused even earlier in the cycle to complete the design prior to the start of production.

36 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

This figure shows that overall management demand is expectedto rise steadily over time from its current state of approximately 850workers, almost doubling between 2004 and 2009. The demand thenstays fairly constant for the next six to seven years before slowlyreturning to its current levels by 2022.

Technical Labour Skills

Next we consider the demand placed by the MOD on technicalworkers in the industrial base (see Figure 2.6).

This projected technical labour demand shows that the MODdemand for technical labour is expected to decrease by approximately600 workers in the next year from its current level of more than2,700 workers. However, because of the future design requirementsfor the CVF, MARS, and FSC programmes, this type of demandincreases sharply until reaching a peak level of slightly less than 3,800

Figure 2.6Future MOD Labour Demands for Technical Skills, 2004–2025

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Labour Demand 37

workers in mid-2007. The demand then decreases at a somewhat uni-form rate until 2012, whereupon it remains fairly constant until2020. However, it is the initial immediate decrease in technicaldemand followed by a sharp upturn that should concern the MOD.Should the shipbuilding industry not retain the technical workersduring the downturn, the industry will face the need to recruit morethan a thousand new workers in a two-year period.

Structural Labour Skills

Figure 2.7 shows the demand placed on structural skills by theMOD, revealing that the MOD’s future naval programmes will placea steadily increasing demand on structural skills over the next sixyears, culminating in a structural worker demand in excess of 3,300workers (an increase of more than 60 percent) before sharply tailing

Figure 2.7Future MOD Labour Demand for Structural Skills, 2004–2025

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38 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

off after 2010. Thereafter, demand for structural workers will riseslightly for five to six years before steadily decreasing.

Outfitting Labour Skills

Next, we look at the demand placed by the MOD for outfitting skills(Figure 2.8).

After staying fairly constant until 2005, the outfitting demandthen begins to increase at a sharp rate, almost doubling over a five-year period from just over 3,200 workers to slightly more than 5,800workers. As with the overall demand, this outfitting demand there-after decreases steadily over the next 15 years, with only a slightincrease during the 2012–2015 time frame. The outfitting skill tradeis the largest of the five skill trade categories we defined, and theshape of its curve mirrors that of the overall labour demand curve.

Figure 2.8Future MOD Labour Demand for Outfitting Skills, 2004–2025

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Labour Demand 39

Support Labour Skills

The final skill trade that we consider in our analysis is support. Figure2.9 shows the demand on this skill over the next 20 years.

Of all the skill trades considered, support has the least variationover time. Still, the demand for support skill trades is expected toincrease by approximately 33 percent over the next five years andstays at or above current levels until 2015, after which the demandslowly decreases.

Macro Versus Micro View of Demand

Thus far, we have looked at the MOD’s projected labour demandboth at the overall, general level, taking specific programmes intoaccount, and at the skilled trade level (i.e., the macro view). At each

Figure 2.9Future MOD Labour Demand for Support Skills, 2004–2025

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40 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

level, we have identified trends in future demand, and we will laterconsider the implications of these trends. We also conducted thisanalysis on a shipyard level, assigning shipyards to build specific pro-grammes and analysing the impacts of the overall programme on spe-cific yards (i.e., the micro view). However, given both the commercialsensitivities surrounding this issue and the uncertainly over whichfirms the MOD will select to design and build specific ships, we haveomitted that part of the analysis from this report. However, theimportance of this shipyard-specific analysis should not be under-estimated. The aggregate (macro view) analysis of MOD demandsplaced on the industrial base will be able to help the MOD under-stand the effect of its programme on the overall industry. It is alsoimportant for the MOD to know the impact of its programmes at anindividual shipyard level, because excess or insufficient demand couldcause productivity, economic, facilities, or other strains on individualyards.

Furthermore, the macro view implicitly assumes that work canbe shifted freely between facilities and, in essence, supposes a singlelabour resource pool to do all the work. This situation, of course, isnot true. There are real constraints (social, practical, and procedural)to the extent that work and workers can be shared. For example, workduring the later stages of outfitting must be done on the ship not in ashop or assembly area. Thus, this particular work is constrained to thelocation where the ship is docked or berthed. The work cannot besubcontracted to another location. Similarly, workers cannot movereadily between shipyards—say, for example, to be in the northeastone day, southern England another, and Scotland the next. We arenot implying that the shipyards do not or cannot share work. In fact,they have done so and do now. VT is a subcontractor to BAE Sys-tems on the production of the Type 45. Appledore produced theEcho-class survey vessels as subcontractor to VT. Swan Hunter sub-contracted sections of the LSD(A) to other fabricators in the north-east. Sharing of work between the firms will help to level the labourdemands at a micro level, but it will not reduce the overall demand(macro view).

Labour Demand 41

The real implication of not fully being able to share labourresources is that the actual employment levels might need to behigher than the macro level demand shows.4 This situation arises, asany particular shipyard might need to employ a larger workforce tomeet future peak demands. Shipyards cannot, in general, expand andcontract their workforce without limit to meet demand. It takes timeto find and recruit workers. Often, newer workers must be trained bymore experienced ones. Expanding the workforce too rapidly mayresult in lower productivity. Therefore, the MOD will need to con-sider the demand it places on the firms on a firm-by-firm basis tofully understand the implications of its build plan. In the next chap-ter, we will examine the implication of constraints to expanding theworkforce.

Alternate Future Scenarios

Thus far, our analysis has focused on the demand for labour pre-sented by the MOD’s current ship acquisition plan. However,because this plan may change in both scope and timings of pro-grammes, we looked at three alternate scenarios involving changes inour basic assumptions. These scenarios allowed us to examine thedegree of sensitivity associated with the current programme and iden-tify areas that the MOD may need to closely monitor should itsfuture plans change.

The first scenario we explored looked at what would happen tofuture MOD demand should the number of ships in the future pro-gramme be reduced, either by decreased requirements or insufficientbudgets. The second scenario examined the impact of adding aFuture Submarine to the assumed future programme. The thirdscenario looked at the impacts of increasing the future requirementsfor the Royal Navy, which would manifest itself in increased shiporders.____________4 For more information on why the actual employment might be higher, see Arena, Schank,and Abbott (2004).

42 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Scenario 1: Decreased MOD Requirements or Budgets

In this section, we examine the implication on the future MODshipbuilding demand if requirements for future naval requirementswere cut. In Table 2.3, we represent these decreases from the currentMOD plan in the shaded sections.

As Table 2.3 shows, we assumed that in a future with decreasedrequirements there would be no additional Type 45s built, the totalnumber of Astute submarines and MARS ships would each decreaseby one ship, and there would be two fewer Future Minehunters built.To compensate for fewer Type 45 destroyers, the start date for theFSC build was moved forward.

When we put this amended data into our future labour demandmodel, we found that the overall MOD demand on the industrialbase would likely decrease substantially. We show this decrease inFigure 2.10, which depicts the demand level from the MOD’s cur-rent plan as a dotted black line.

Overall, the peak demand generated by this scenario would belower than the current MOD plan, which is to be expected becausethis scenario had fewer ships being built. As with the current MOD

Table 2.3Scenario 1: Decreased MOD Requirements or Budgets ProgrammeAssumptions

Programme

Class Size(on contract,additional)

Delta Number ofShips from

‘Current Plan’

Design/BuildDuration

(from 2004)

OPV(H) 0,2 0 2004–2006

JCTS 0,1 0 2006–2010

CVF 0,2 0 2004–2015

Astute 3,3 (6 total) –1 2004–2016

Type 45 6,0 (6 total) –3 2004–2010

MARS 0,9 –1 2007–2020

FSC/Future Minehunter 0,14/2 –2 2007–2022

Labour Demand 43

Figure 2.10Scenario 1: Decreased MOD Requirements or Budgets—Labour Projections by Programme, 2004–2025

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plan, there is a slight decrease in demand in 2005, followed by an up-surge in overall demand. Although this demand peaks at the sametime as in the current MOD plan, that peak involves about 800 fewerworkers than the MOD plans. Other than a slight increase over thebase case, due to the FSC being moved forward, the first scenariogenerally follows the general demand pattern of the current MODplan but with less labour demands. The first scenario diverges fromthe MOD plan in the later years as its future surface combatant pro-duction drops off.

We also looked at the first scenario’s labour demands by skilllevel. Figure 2.11 shows the MOD’s direct labour demand usingassumptions from the first scenario.

44 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Figure 2.11Scenario 1: Decreased MOD Requirements or Budgets—Labour Projections by Skill Trade, 2004–2025

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The general skill level labour demand trends are similar to thosein the current MOD plan. However, there are a couple of importantdifferences. First, the maximum demand placed on outfitting skills bythe first scenario is less than that of the MOD plan (although bothcases do require a rapid increase in outfitting labour from 2004 to2009). The other important difference is in the technical demand.Although, again, the total number of technically skilled workersdecreases in this scenario, the ‘hump’ of technical demand is morepronounced in this case.

Scenario 2: Addition of Future Submarine to the MOD’sRequirements

In this scenario, we considered the impact of adding a Future Sub-marine to the MOD’s future requirements. Because of the sensitivi-ties regarding the role such a submarine may fulfil, we did not definethe function of the submarine, but only assumed that it would be

Labour Demand 45

Vanguard-sized, built to a modified Astute design, and enter intoservice around 2023.5 In Table 2.4, we highlight this assumption inthe shaded sections.

Inputting this additional information into our model, we wereable to project the labour demand that this Future Submarine mayplace on the industrial base. Figure 2.12 shows the overall MODdemand with the demand for a Future Submarine in at the top inblack with white stripes. As before, the demand placed by the currentMOD plan is shown as a dotted black line.6

As we assumed that the design and production of a Future Sub-marine would start right at the end of this decade, this scenario hasthe same peak demand as the current MOD plan. However, the addi-tion of a Future Submarine significantly increases the demand on theindustrial base from 2009 onwards. This Future Submarine alsocushions any decrease in demand into the 2020s.

Table 2.4Scenario 2: Addition of Future Submarine Programme Assumptions

Programme

Class Size(on contract,additional)

Delta Number ofShips from

‘Current Plan’

Design/BuildDuration

(from 2004)

OPV(H) 0,2 0 2004–2006

JCTS 0,1 0 2006–2010

CVF 0,2 0 2004–2015

Astute 3,4 (7 total) 0 2005–2018

Type 45 6,3 (9 total) 0 2004–2012

MARS 0,10 0 2007–2020

FSC/Future Minehunter 0,14/4 0 2007–2023

Future Submarine 0,1 +1 2009–2023

____________5 We estimated this date to be when the Vanguard class would begin to come out of service.6 Because the only modification in this scenario is a Future Submarine, the baseline demandmirrors that of the full demand of this second scenario, minus the Future Submarine.

46 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Figure 2.12Scenario 2: Addition of Future Submarine—Labour Projections byProgramme, 2004–2025

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However, the most interesting impacts of adding a Future Sub-marine to the industrial base can be seen in the impact on our skilltrade categories. Figure 2.13 plots these future demands for the skilltrades.

Although the outfitting and structural trades show slightdemand increases to account for the addition of a Future Submarinein the MOD’s plans, the real difference can be seen in the technicalskills. Designing a new submarine is a technically demanding activity,and we estimate that the industrial base would see an increase indemand from the MOD on the order of 1,000 technical workersfrom 2012 to 2015. This technical demand comes on top of a similardemand increase from 2005 to 2007–2008.

Labour Demand 47

Figure 2.13Scenario 2: Addition of Future Submarine—Labour Projections by SkillTrade, 2004–2025

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Scenario 3: Increased MOD Future Requirements

In our final scenario, we considered the impact on the industrial baseif the MOD were to increase its operational requirements beyondthat of our earlier assumptions. This situation would practically resultin the MOD ordering more ships and, thus, placing an increaseddemand on the industrial base. The programme assumptions we usedfor this scenario are shown in Table 2.5 with the shaded sectionsshowing the changes from the current MOD plan.

As the table shows, we increased the size of many of the pro-grammes. We added two additional OPVs that will be built in the2012–2014 time frame. We added two additional Astute submarines

48 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Table 2.5Scenario 3: Increased MOD Future Requirements—Programme Assumptions

Programme

Class Size(on contract,additional)

Delta Number ofShips from

‘Current Plan’

Design/BuildDuration

(from 2004)

OPV(H) 2,2 0 2004–2006

JCTS 0,1 0 2006–2010

CVF 0,2 0 2004–2015

Astute 3,6 (9 total) +2 2005–2020

Type 45 6,4 (10 total) +1 2004–2013

MARS 0,10 0 2007–2020

FSC/Future Mine-hunter

0,18/6 +6 2007–2026

Future Submarine 0,1 +1 2009–2023

and one more Type 45 destroyer. The number of FSCs increased to18 with its similar-hulled Future Minehunter also increasing fromfour to six. Finally, we kept the Future Submarine in this scenario. Inaddition to increasing the number of ships to be built, we adjustedthe design/build duration periods to take these increases into account.

As one would expect, if the MOD were to increase its futurerequirements, the amount of demand on the overall industrial basewould also increase. Figure 2.14 shows this impact.

Although future demand increases in later years, the changesmade do not affect demand over the next six to seven years. Thus, thepeak demand placed by this scenario is identical to the current MODplan. The impact of these increased requirements begins in 2011,when future demand decreases at a much slower rate than in earlierscenarios. The same trends can be seen when looking at general skilllevels, as evidenced by Figure 2.15.

Initially, the general skill trade demands act much the same asthey did under the current MOD plan. However, later in time, all theskill trades show a marked slowing in their rate of decrease. As withscenario 2 (addition of Future Submarine), there is still an oscillatingtechnical skill demand over time, which may pose a challenge for theMOD.

Labour Demand 49

Figure 2.14Scenario 3: Increased MOD Future Requirements—Labour Projections by Programme, 2004–2025

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Figure 2.15Scenario 3: Increased MOD Future Requirements—Labour Projections by Skill Level, 2004–2025

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50 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Looking at all three alternate scenarios, a few trends stand out.First, regardless of the level of future requirements, the MOD’sdemand on the industrial base over the next seven or eight years willbe substantial, and it is in this period that many of the current chal-lenges lie. Second, should the MOD add an additional Future Sub-marine to its requirements, it will need to carefully consider theimpacts, especially on technical skills, of this choice. Finally, in all thescenarios, demand generally tapers into the future. This tapering isgreater or less, depending on the scenario. Although it is difficult tomake projections 15 to 20 years away, it does not appear that therewill be substantial MOD programmes during this period—and thatmay have some long-term impacts on the industrial base.

Future MOD Programme Challenges

After closely examining the future MOD naval shipbuilding pro-gramme, both in the assumed current MOD plan and some possiblevariants of it, it is clear that the programme raises several challengesfor the MOD and wider UK shipbuilding industrial base.

First, regardless of programme variation, the MOD’s plans callfor a dramatic increase in the amount of labour required to build itsfuture ships. This increase in labour demand will force the ship-building industrial base to rapidly increase its workforce, especially inspecific outfitting, structural, and technical skills.

Second, after the period of peak labour demand, the amount ofdirect workers needed to build the future MOD ships will decreaseand will continue to decrease into the foreseeable future. This declineof workers may raise concerns about the long-term stability of theshipbuilding industrial base.

Third, the MOD’s future shipbuilding programme creates spe-cific challenges in managing the technical skills in the industrial base.With a short-term decrease in demand followed by a rapidly increas-ing need for technical skills, the industrial base may face significantchallenges in either retaining or recruiting technical workers to meetthe MOD’s requirements.

Finally, although not discussed specifically in this chapterbecause of the commercial sensitivity issues, there may be workforce

Labour Demand 51

labour challenges in individual shipyards due to misalignment ofskills, lack of future work, or periods of peak demand followed byperiods of relative inactivity. These challenges are shipyard specific,but the MOD needs to be aware of them so that it can better manageits programmes.

These issues, though not insurmountable, will challenge theMOD and industry over the short-to-mid term. However, in the nextsection, we discuss possible ways to smooth the future labour demandto mitigate these challenges.

Options for Managing Increased MOD Demand

As discussed above, the future MOD shipbuilding programme willplace increased demands on the UK shipbuilding industrial base. Inthis section, we examine steps that the MOD can take to help man-age this increased demand to make its programmes more achievable.

‘Level-loading’ is one way the MOD could make it easier for theindustrial base to meet future labour requirements. Level-loading is ageneral term used to describe a number of options that the MOD canuse to smooth projected labour demand over time. Instead of con-tinuing to follow the historic MOD demand profile of peaks andtroughs, level-loading aims to smooth the labour demand so thatindustry can better manage its own workforce and prepare for futureprojects. The main advantages of this method are that it is directlywithin the control of the MOD to implement and that levellingworkload will tend to level funding as well.

The MOD can use two basic techniques to put level-loadinginto practice:

• extending the length of programmes• moving programmes forwards or backwards in time.

Additionally, the MOD could employ two other options that,though not necessarily reducing the overall projected labour demand,

52 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

will help to shave peak labour demands at either the overall industryor individual shipyard level. These options are

• executing modular build strategies for programmes• utilising smaller shipyards or nontraditional builders to con-

struct blocks during peak demand periods.

In terms of level-loading techniques, the MOD can first look toextending the length of programmes. It can do this either by stretch-ing the build time for individual ship-builds or by extending the timebetween ship-builds. Both methods can lower peak demands (and fillin troughs), depending how they are used. We provide an example ofthe latter technique in Figure 2.16.

The figure shows that, by increasing the interval between buildsfor a current programme from six months to nine months, peaklabour demand, as depicted by the circles, would be reduced by 19.8percent and the overall programme extended by one year.

Figure 2.16Level-Loading by Extending the Time Between Ship-Builds

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Another level-loading technique that the MOD can use is tomove programmes forwards and backwards in time. By shifting pro-grammes away from periods of peak demand and re-programmingthem into periods of lower demand, the MOD can reduce the peaklabour demands on the industrial base. Despite the level-loadingbenefits of doing so, we recognise that there may be challenges to thisin practice. Moving programmes backwards in time (i.e., ‘to theright’) may not be possible because of operational restrictions. Exist-ing programmes may be scheduled to come out of service at a specifictime, and delaying programmes may create an unacceptable opera-tional gap. Moving programmes forward in time (i.e., ‘to the left’)may also pose problems. Moving programmes forward without con-sidering the impacts to design maturity may lead to cost overruns andfurther delays. This option should only be contemplated with carefulconsideration to design maturity issues.

Figure 2.17 shows an example of the potential benefits of mov-ing a programme forwards or backwards in time.

Figure 2.17Impact of Moving Programmes to Avoid Peak Demand

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54 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

In the figure, we looked at the impact of moving one of the shipclasses of a future MOD programme to the right by 12 months. Bymoving the entire ship class to the right, the peak labour demand,identified by the circled areas, would be reduced by 11 percent, andthe peak is delayed by four years. Moreover, the overall programmelength remains the same.

Of course, it is possible to combine these two techniques andlower peak demand even further. Figure 2.18 shows the results ofboth moving the second class of a future MOD ship programme tothe right by 12 months and extending the entire programme by 12months.

The figure illustrates that by using two of the level-loading tech-niques—extending programme length and moving programmesaround—it is possible to reduce peak demand. In this example, thesetechniques would reduce peak demand by 13 percent and woulddelay peak demand by five years. However, as we cautioned earlier,this may not always be feasible because of fiscal constraints, design

Figure 2.18Impact of Both Extending and Moving Programmes to Avoid Peak Demand

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maturity issues, or replacement and capability needs. All these exam-ples should be seen only as illustrative and not as a specific recom-mendation for the MOD.

Illustrative Results of Level-Loading Future MOD Labour Demand

Using the techniques defined above, we applied a series of changes toour original assumptions to see whether it is possible to ‘level’ theprojected future labour demand the MOD will place on the indus-trial base through its naval shipbuilding and repair programmes.These changes, which are illustrative only, entailed the following:

• extending the interval between Type 45 builds to nine months• moving JCTS forward by 18 months• delaying one MARS ship class by 12 months• extending all MARS ship classes by 12 months• delaying the CVF programme by 12 months.

Inputting these changes into our labour estimation modelallowed us to generate a new labour demand estimate (shown in Fig-ure 2.19).

Figure 2.19 shows that, by making the five level-loading pro-gramme changes, the MOD could reduce its peak demand byapproximately 12.5 percent7 and delay the date of peak labourdemand by just under three years. The labour projection graph is alsonoticeably flatter and reduces the slope of the labour decline after theCVF and Type 45 programmes finish.

Another way to graphically see how this level-loading scenariosmoothes demand is to look at the change in labour demand overtime compared with the current demand (as of 2004) placed by theMOD (Figure 2.20).____________7 This percentage corresponds to roughly 1,900 direct workers.

56 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Figure 2.19Level-Loading Labour Projections, by Programme

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As Figure 2.20 shows, under the current MOD plan, the peakdemand would rise to more than 50 percent of the current MODdemand, while the level-loaded case would rise only about 35 percentabove the current demand. The figure also shows that the changes indemand also occur more gradually and should be easier for the indus-trial base to manage.

Applying these level-loading assumptions to the general skilltrades, we also find that level-loading improves the demand profilefor almost all trades (see Figure 2.21).

Under level-loading assumptions, the peak labour demandwould decline for all skill trade categories, although the decrease intechnical demand in 2005 would still be followed by a rapid upsurgein demand. Regardless of level-loading strategies used, we believe thisshort-term challenge will remain.

Figure 2.21Level-Loading Labour Projections, by Skill Level

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58 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

As we mentioned earlier, these figures are meant to be illustra-tive to show how the MOD may go about levelling its future demand.We do not claim that the level-loading changes we made to the cur-rent MOD plan are optimal or even feasible. They serve only to illus-trate ways in which the MOD could reduce peak demand. Specificdecisions that the MOD could make to reduce peak demand shouldbe taken only after considering their impact on the totality of itsshipbuilding programme and how they may affect existing pro-grammes and the industrial base as a whole. These specific recom-mendations will require further analysis by the MOD and are beyondthe scope of this study. Most importantly, the MOD will need tobalance the industrial needs with its operational requirements in anylevelling plan.

Other Build Strategies

In addition to employing level-loading techniques to smooth outperiods of peak demand, the MOD can shave individual shipyardpeaks by employing two additional strategies.

First, the MOD can utilise modular build strategies similar tothose used on the Type 45 programme. By having both BAE Systemsand VT Shipbuilding build blocks for the Type 45, labour is distrib-uted between both shipyards and reduces the peak demand at any oneshipyard. In terms of reducing peak demand at an individual ship-yard, this strategy would work well, especially for larger ships such asthe CVF and MARS.

Second, the MOD can encourage its programmes to use smallerand medium-sized shipbuilders or nontraditional marine firms duringperiods of peak demand. This use will reduce the load on the larger,core shipyards while providing work for smaller firms that may nothave the capability to build large ships on their own. There are a vari-ety of shipyards in the United Kingdom that have the potential tofulfil this role, including Appledore, KBR, AMEC, Harland andWolff, Ferguson, the A&P Group, Northwestern Shiprepairers, andthe former Royal Dockyards at Devonport, Portsmouth, and

Labour Demand 59

Rosyth.8 This list is not exhaustive but does illustrate the breadth ofadditional resources that may be potentially available to the UnitedKingdom. However, before committing to use additional firms in thisway, the MOD must ensure that these shipyards have the capability(in both facilities and skills) to fulfil these ‘peak-shaving’ roles.

The MOD can also consider the fabrication and project man-agement skills available in the offshore industry. We specificallyaddress the capacity of this industry, which may have a part to play inhelping the MOD to complete its future programmes, in ChapterSix.

Summary

In this chapter, we have looked at the future MOD shipbuilding pro-gramme (as we see it in the next 20 years) and have analysed thelabour demands that it will place on the UK shipbuilding industrialbase. We found that, over the next six years, demand will increasesignificantly, after which point it will decrease to below current levels.The rapid increase in demand, largely caused by four major pro-grammes—Astute, Type 45, CVF, and MARS—will force the navalshipbuilding industrial base to appreciably increase its workforce.

Moreover, there are significant differences between specificlabour skills. The manufacturing trades (i.e., outfitting, structural,and support) show increases from demand levels in 2004 of between33 and 81 percent—the largest increase being outfitting. The man-agement category follows a similar trend but grows by nearly 90 per-cent over the 2004 demand level. The trend for technical skills ismore complicated. Initially, there is a short-term drop (2005) indemand for technical workers—a drop of approximately 22 percentrelative to 2004. This decrease is followed by a rapid increase indemand to a level about 40 percent greater than the 2004 level.____________8 In fact, many of these firms have a record of producing either warships or support ships forthe Royal Navy or Royal Fleet Auxiliary. However, this experience lies largely in designingand producing smaller or less-complex vessels.

60 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Clearly, managing the technical workforce over these rapid changeswill be problematic.

By employing a variety of level-loading techniques, the MODcan mitigate the labour challenges posed by its planned shipbuildingprogramme and both decrease and delay the peak labour require-ments on the industrial base. The MOD will have to carefully con-sider how to do this, as it needs to balance its operational and fiscalrequirements with industrial base concerns.

Another way to reduce peak demand periods, especially at indi-vidual shipyards, is to utilise smaller shipyards or portions of thewider marine industry in parts of the future shipbuilding programme.Again, the MOD will have to consider how to do this on an individ-ual basis, since different firms have their own core competencies.

61

CHAPTER THREE

The Supply of Naval Shipyard Labour in theUnited Kingdom

Whereas the preceding chapter discussed the demand for specificshipbuilding skills in the United Kingdom, this chapter addresses thesupply of skills in the shipbuilding and repair industry.1 The majorfocus here is whether and how the shipbuilding workforce in theUnited Kingdom can expand to meet the upcoming surge in navalproduction—a difficult analytical issue. First, the data on the ship-building workforce in the public domain are inconsistent and incom-plete, despite an ongoing effort to build more comprehensiveworkforce databases, particularly at the regional level. Second, manyfactors that might help resolve the labour problem are uncertain anddifficult to quantify. That said, we have collected data from the majorBritish naval shipbuilders and repairers, shipbuilding-related compa-nies, regional development agencies, and private personnel agenciesthat allow us to generally forecast the potential pool of workerswithin the UK shipbuilding industry from 2004 to 2020.____________1 In this chapter, we have collapsed the range of required shipyard skills into two majorcategories of workers: management/technical and manufacturing. (Management and tech-nical workers are employees involved in administration, marketing, design, engineering, esti-mating, and project management, among other skills. The manufacturing workers are thosewho perform structural, outfitting, and direct support tasks.) We have done this because notall the UK firms that we contacted for data on the potential supply of naval shipyard labourcould easily provide information on worker recruitment and attrition at the subcategorylevel, so making supply projections at that level would seem to imply a level of precision thatwe could not justify. Nevertheless, this chapter will present qualitative, if not quantitative,information on the difficulties that the shipyards have been experiencing in specific skillareas.

62 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

In this chapter, we begin by reviewing what is known about theemployment situation in the UK shipbuilding industry. We thendescribe some of the factors that may constrain or enhance the abilityof the naval shipyards to expand their workforce. Finally, we addressthe question of how the potential supply of naval shipyard workerscompares with the demand for workers under different supply anddemand scenarios.

Employment Status of the UK Shipbuilding and RepairIndustrial Base

Until recently, the number of persons directly employed in the UKshipbuilding, repair, and offshore sector had been declining for dec-ades. According to the Office of National Statistics (ONS), industryemployment in Great Britain (not including Northern Ireland) stoodat almost 41,600 in 1991 and about 25,000 in 2000, where it hasmore or less remained (see Figure 3.1).2

Regional Differences in UK Shipyard-Related Employment

Despite the overall decline in shipyard related employment in Britain,regional employment in this industry has varied. According to theONS, there was a relatively consistent downward trend in employ-ment in Scotland (from 11,516 workers in 1995 to 8,386 workers in2000), the northwest (from 7,758 workers in 1993 to 1,652 workersin 2000), and the northeast (from 8,078 workers 1996 to 1,633 in2000). However, the trend was less clear in the southwest and south-east regions of the country. Employment edged up in the southwestfrom 5,800 workers in 1998 to 6,471 workers in 2000 and remained

____________2 The ONS data were sorted by Standard Industrial Classification 35.11 (Building andRepairing of Ships) and include full-time and part-time workers involved in the building andrepairing of commercial vessels and warships, as well as in the construction of offshoredrilling platforms and floating structures.

The Supply of Naval Shipyard Labour in the United Kingdom 63

Figure 3.1UK Shipbuilding, Repair, and Offshore Employment in the 1990s

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fairly stable in the southeast in the 1990s at between 4,000 and 6,000workers. Figure 3.2 depicts the plotting of these regional trends. Itshould be noted that the ONS data on shipyard employment fornorthwest England in 2000 are in substantial conflict with informa-tion supplied by BAE Systems on employment at its Barrow facilityin 2000, which shows higher levels of employment in the northwest.

Sector Employment in the UK Shipbuilding and Repair Industry

Although our sources generally agree on the total number of employ-ees in shipbuilding and related industries, they are less clear abouthow many of these people work in the separate categories of mer-chant shipbuilding, naval shipbuilding, ship repair, and offshore oilfabrication. In 2000, fewer than a quarter of those employed in theoverall shipbuilding and repair sector worked in commercial ship-

64 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Figure 3.2Regional Shipbuilding, Repair, and Offshore Employment in the 1990s

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building and ship repair, as well as offshore oil construction.3 As Fig-ure 3.3 indicates, more than three-quarters of those in the shipbuild-ing and repair sector worked as builders or repairers of naval vessels.4

According to the responses to the questionnaire that we sent toUK naval yards in fall 20035, the number of manufacturing employ-ees in the industry increased from 9,096 in 1999 to 10,425 in 2001before falling back to 9,685 in 2003 (see Figure 3.4). This rise is

____________3 The available data do not distinguish between employment in the offshore and commercialshipbuilding/repair industries.4 This picture of the numbers of workers employed in various sectors of the shipbuildingand repair industry was pieced together from a number of sources, including the ONS,Appledore/University of Newcastle (Prospects for UK Merchant Shipbuilding Industry, 2000),and the Confederation of Shipbuilding and Engineering Union’s (CSEU’s) ShipbuildingWorking Group.5 These naval shipyards include those owned by BAE Systems in Barrow-in-Furness andGlasgow, VT, FSL in Portsmouth, DML in Plymouth, Swan Hunter in Newcastle-upon-Tyne, and BES in Rosyth.

The Supply of Naval Shipyard Labour in the United Kingdom 65

Figure 3.3Share of Workers in Shipbuilding and Repair Subsectors in 2000

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66 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

largely attributed to the reopening of Swan Hunter and an increasedrepair/refit workload at DML’s Devonport Royal Dockyard in Ply-mouth. Following a drop-off in 1999, the number of managementand technical workers in the seven naval shipyards has remained rela-tively steady: It stood at 6,396 in 2003. The only significant increasesin recent years occurred at DML and Swan Hunter.

UK Shipbuilding and Repair Industry Workers Are Ageing

Despite the relatively stable rate of employment in naval shipbuildingand repair industry in recent years, the workforce is ageing. Accord-ing to our 2003 survey, almost 60 percent of the management andtechnical workforce in the seven naval yards is more than 40 years old(see Figure 3.5). One-third of the managers and technicians in the sixyards are between the ages of 41 and 50. About a quarter are 51 to 60years old, and fewer than 3 percent are over 60 years old. Only 14percent of managerial technical workers are 30 years old or younger—although BAE’s Glasgow shipyards and Swan Hunter have a moreyouthful component of management and technical employees thanthe other yards. The important 31–40 age group comprises 26percent of the total management and technical workforce, but its sizevaries considerably across the shipyards, from a low of 16 percent to ahigh of 33 percent.

The manufacturing workforce in the naval shipbuilding andrepair industry is even older than the management and technicalworkforce. Sixty-two percent of manufacturing employees in the sixcore shipyards are older than age 40. About a fifth of manufacturingworkers are in the 31–40 age group. Although 17 percent of allmanufacturing workers are 30 years or younger, the size of this groupvaries considerably, from 5 to 25 percent of a yard’s manufacturingworkforce.

The flip side of the ageing workforce story is that naval ship-building and repair workers in the United Kingdom are generallyquite experienced in their jobs. More than 75 percent of the man-agement, technical, and manufacturing workers have more than fiveyears of experience. Only in one case does fewer than 60 percent ofthe shipyard’s overall workforce have five or fewer years of experience.

The Supply of Naval Shipyard Labour in the United Kingdom 67

Figure 3.5Age Profile of the Workforce in the Naval Shipyards in 2003

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Small Reliance on Temporary Workers

One way that the naval shipyards could grow to meet any potentialsurge in demand during the next several years is to hire more tempo-rary workers. However, with the exception of BES Rosyth and, to alesser extent, BAE Barrow, most naval shipyards do not currently usemany (if any) temporary workers. Two shipyards employed norecruitment agency personnel in 2003.6 According to officials at oneshipbuilding company, they have more than adequate personnelresources in their trades’ database and claim that the use of temporaryworkers discourages the formation of a stable, permanent labourforce. Another shipbuilder does not currently employ many tempo-rary workers but anticipates it may in the future. In addition, thesame shipbuilder recently began recruiting significant numbers of____________6 It should be noted that the demand for naval vessels was relatively low in 2003. Someshipyards may have used more temporary workers during peak periods in the past.

68 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

staff on short- or fixed-term contracts to enlarge the number of peo-ple in its region with shipbuilding experience, should they berequired to meet future demand.

Ability of the Naval Shipyards to Expand TheirWorkforces

Recent studies provide an uncertain picture of shipbuilding employ-ment.7 On the positive side, they all agree that the current workforceis large enough to meet current naval ship production requirements.They also note that the shipyards are confident in their ability torapidly expand their workforces to satisfy increased workloadrequirements.

Such expansions could occur in most regions. In Scotland, ship-builders expect to take on an additional 2,300 employees. SwanHunter reports that the size and flexibility of its available workforcehas meant that ramping up resources for large projects has rarelycaused a problem, as exemplified by the company’s recruiting of3,000 workers in about six months for the Solitaire pipe layer projectin the late 1990s. For its part, VT Shipbuilding has said that it couldcope with the demand for labour under any potential scenariothrough a combination of recruitment, seconding of workers fromFSL, and the use of temporary employees. Notwithstanding its loca-tion in southwest England, which is geographically removed from theemployment hub, DML has doubled its workforce at times, if onlyfor a short period.8

Concerns About Labour Shortages

Shipyard sources have expressed concern about the workload gapbetween 2003 and 2006, during which time shipyard owners may layoff workers they may need in the future. In particular, the shipyards____________7 See, for example, Birkler et al. (2002) and Bruce (2002).8 This doubling of the workforce at DML occurred in the case of the D154 nuclear facilitiesupgrade.

The Supply of Naval Shipyard Labour in the United Kingdom 69

are worried that, unless the MOD starts other programmes (such asMARS) earlier than planned, shortages of certain kinds of highlyskilled workers, such as design engineers for CVF and later pro-grammes, might emerge. Once made redundant, they believe, manyof these highly skilled persons will not return to the shipbuilding pro-fession.

Shipyard officials make a distinction between workers withgeneric skills and those with domain expertise. Although the formermay be well educated (e.g., finance or human resource specialists),they do not represent a critical resource. Those with domain knowl-edge—defined as an intimate knowledge of naval shipbuilding rulesand standards—are key to a company’s naval business. These peopleoften take a long time to train. For example, it can take test andcommissioning engineers 10 to 20 years working in the industry tobecome fully proficient. Furthermore, these engineers cannot be eas-ily replaced in the short term by technical experts from other indus-tries or even other shipbuilding fields (e.g., submarines or naval sur-face ships). Finally, there is a limited pool of suitably qualified peoplewith necessary domain experience who are not already employed inshipbuilding.

Recruitment in the Shipbuilding and Repair Industry FacesSignificant Obstacles

Despite the shipyards’ basic optimism regarding their recruitmentcapabilities, recruiting and retaining workers in the shipbuildingindustry is becoming more difficult. Educated young people havemore job opportunities than they have had in the past, and they areless likely to take positions in industries, such as shipbuilding, that areperceived as being strenuous, uncomfortable, and unstable. Forexample, a survey of 1,063 second- and third-year undergraduates inthe shipbuilding community of Barrow-in-Furness indicated thatonly 115 are undertaking studies likely to be of relevance to ship-

70 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

building.9 Furthermore, those with skills of great importance to ship-building, such as electricians, have good prospects in other industries.

The recruitment problem is exacerbated by the decline in theshipbuilding training infrastructure. According to the EngineeringTraining Maritime Authority, most shipbuilding and repair compa-nies are ineligible to receive public support for training because oftheir large size. However, small companies that are eligible for gov-ernment funding are reluctant to give up productive employees fortraining or mentoring.10 Shipyard officials told us that the currentapprentice training programme does not motivate people to work intrades such as shipbuilding. The National Vocational Qualificationprogramme, they say, has significant academic requirements that aredifficult for the average tradesperson to fulfil. Those who do meetthese requirements often go on to obtain a full college degree, andthen expect desk jobs rather than waterfront positions.

Shipyard Training Initiatives

Still, significant steps are being taken to remedy the recruitmentproblem. According to the information provided to us in fall 2003,most of the major shipbuilders have teamed with local communitydevelopment agencies and schools to expand apprentice programmesand entice both younger and older workers to enter the shipbuildingand repair profession.

In Scotland, Scottish Enterprise Glasgow has helped implementskills training for BAE Systems as part of the Clyde Shipyards TaskForce. In 2003, it established a Construction Skills team withresources of £25 million, which may soon be available to the ship-building sector. Scottish Enterprise also has plans for a ScottishMarine Technologies Training Project that would provide on-siteaccreditation and adult training on the job. In addition, BES and____________9 Furness Enterprise Limited (2003). According to Scottish Enterprise, Careers Scotland isattempting to improve the image of manufacturing professions such as shipbuilding. Forexample, it has targeted its ‘Make It in Scotland’ campaign at 11- and 12-year-olds beforethey make their exam subject choices.10 Closhen (2002).

The Supply of Naval Shipyard Labour in the United Kingdom 71

Lauder College are developing improved procedures for selecting andtraining craft modern apprentices, as well as programmes for up-skilling, re-skilling, and cross-skilling existing employees.

Swan Hunter’s training programmes cover all disciplines andinclude modern apprentice schemes, adult training and retrainingschemes, graduate training and development, management trainingand general re-skilling. Swan Hunter and its business partners plan toat least double their current apprentice intake over the next 10 years.The company is piloting a fast-track apprenticeship programme foradults 25 to 40 years old, who must complete the same course asmodern apprentices but do so within two years as apposed to the cur-rent four-year modern apprentice scheme for trainees aged 17 to 24.

The Northwest Development Agency has recently awarded atraining grant to BAE Barrow.

In southern England, VT Shipbuilding has joined with a num-ber of organisations—for example, the Learning and Skills Council,Engineering Employers’ Federation, and the SEMTA—to promotecareers in engineering, provide vocational training for young peopleand older adults, and establish a set of specific occupational stan-dards. VT is also working with Nottingham Trent and Portsmouthuniversities to develop a modular, or points-based, vocational degreethat could be delivered in the workplace as part of the ‘Skills for Life’project.

Consequences of Unemployment, Demographic Changes, andShipyard Redundancies

Many assume that a situation of high unemployment is good forshipbuilding recruitment. If true, the situation in the United King-dom offers a mixed picture. On the one hand, the number of un-employment claimants has declined in all major UK shipbuilding andrepair regions in recent years.11 On the other hand, unemployment____________11 Between 1998 and 2001, the number of unemployment claimants declined in Scotland(from 140,000 to 107,000), Northeast England (from 83,000 to 60,000), Northwest Eng-land (from 166,000 to 127,000), Southeast England (from 106,000 to 66,000), and South-west England (from 83,000 to 53,000).

72 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

levels in the northern communities of Glasgow, Dunfermline, Tyne-side, and Barrow are relatively high compared with the southernshipbuilding communities of Plymouth and Portsmouth. For exam-ple, unemployment claimants as a percentage of workforce jobs weretwo-and-a-half times higher in Dunfermline, the home of BES, thanin Portsmouth, the home of VT and FSL (see Figure 3.6). Thus, it islikely that northern shipyards will have a larger pool of unemployedworkers from which to draw during periods of high demand than willsouthern shipyards.

It is also argued that the increase in the number of young peopleentering the workforce could help alleviate projected shipyard labourshortages. For example, in Scotland, the population of people atschool-leaving age (aged 16 to 19) is projected to peak in 2004 at264,000 and will not slip below 2002 levels (254,000) until 2011.The population of young adults (aged 15 to 29) will peak at 964,000

Figure 3.6Unemployment Levels in Important Shipyard Towns in 2002

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The Supply of Naval Shipyard Labour in the United Kingdom 73

in 2008 and 2009, precisely when the shipyards will be most activelyrecruiting.12

Recent shipyard redundancies could also expand the size of theavailable labour pool in certain areas. The number of redundancies inthe naval shipyards from 2001 to 2003 averaged 225 per year formanagement and technical workers and 720 for manufacturing work-ers. Many of these redundancies occurred at BAE’s shipyards in Bar-row and, to a lesser extent, Glasgow. Although older unemployedworkers may provide a reservoir of workers during the projected surgein shipbuilding construction later in the decade, shipbuilding officialshave voiced concern about rehiring them because their preexistinghealth problems could lead to lower productivity. In addition,research on previous downsizings at Barrow has shown that manyredundant workers had taken other jobs, retired, or accepted in-capacity or unemployment benefits. Furthermore, many of these ex-shipyard workers—including those who had found positions else-where as well as those who had left the labour market (the so-calledhidden unemployed)—were unlikely to return to their former ship-building jobs in Barrow without a significant financial incentive.13

Recent Shipyard Recruiting Efforts

In general, recruiting in British naval shipyards has been rather stablein recent years. As Figure 3.7 shows, this is particularly true for themanagement and technical category of workers. An average of 390recruits were hired per year into this category between 1999 and2003. Among the shipyards, BAE Glasgow has been recruiting mostheavily, while Swan Hunter and DML had a substantial surge inrecruitment in 2001. BAE Barrow recruited a relatively large numberof management and technical workers in 1999 and 2000, but theshipyard has since reduced its rate of hiring. In recent years, VT

____________12 Private communication, official, Scottish Government’s Actuary Department, January2004.13 Furness Enterprise Limited (2003).

74 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Figure 3.7Number of Recruits in the Naval Shipyards, 1999–2003

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0

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mb

er o

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Managementand technical

Shipbuilding, FSL, and BES Rosyth have been recruiting manage-ment and technical workers at a relatively low level, although the lat-ter two increased their hiring in this area in 2002–2003.

The number of manufacturing recruits averaged fewer than1,000 annually during the 1999–2003 period. In 2001, however, itsurged to more than 1,200 and then dropped below 750 in 2002before rising to 892 in 2003. Much of this surge was attributable toSwan Hunter’s recruiting following its reopening. Although BAE’sBarrow shipyard significantly reduced the number of manufacturingrecruits throughout this period, the company’s Glasgow yards main-tained a relatively consistent level of manufacturing recruitment. Thesame is largely true of DML. FSL recruited a substantial number ofmanufacturing workers in 2002. BES Rosyth and VT Shipbuildinghave hired relatively few manufacturing workers since 1999.

The Supply of Naval Shipyard Labour in the United Kingdom 75

Pools of Labour That Could Be Tapped

Previous shipbuilding capacity studies have indicated that there are anumber of pools of labour that can be tapped by the naval shipyardsto meet projected increases in workforce requirements between 2006and 2018.14 For example, a declining UK merchant shipbuildingindustry offers a potential source of additional workers. Whereas UKcompanies held one-third of the world commercial shipbuilding mar-ket in 1950, it has only about a 1 percent share today. Not only hasthe United Kingdom had difficulty keeping pace with industry lead-ers Japan and South Korea, it has also lost ground to the Netherlands,Spain, and Germany because of the latter’s lower prices and higherproductivity.15 Between 1990 and 2000, the number of ships deliv-ered annually by British commercial shipyards fell from a high of 25to five. Of the 28 yards that delivered ships during this period, only12 remained active in 2000.16

Another possible source of shipyard workers is the offshore fab-rication industry. After a continuous downturn in the 1980s and1990s—which seemed to spell the end of the offshore industry in theUnited Kingdom—prices recovered in 1999, and the industryappeared to regain its sense of optimism.17 Since then, however, off-shore construction has remained stagnant, with operators reluctant toinvest in new platforms, given the limited prospects for additionalsignificant oil discoveries in the North Sea region. As a result, com-panies in the offshore business—such as KBR Caledonia, which has alarge facility in Nigg, Scotland—are actively seeking shipbuildingproduction work. For their part, merchant shipbuilding, repair, anddesign companies are teaming with traditional naval shipyards toshare the projected increase in the naval shipbuilding workload.____________14 In addition, Swan Hunter, Scottish Enterprise, and Highlands and Islands Enterprisehave developed regional databases that contain thousands of workers with skills relevant toshipbuilding. However, it is unclear how many of these workers would be available to theshipbuilding industry in the future.15 Shipbuilders & Shiprepairers Association (2000).16 Appledore/University of Newcastle (2000, p. 21).17 See UK Offshore Operators Association (2000) and Bradbury (2000).

76 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Although primarily involved in ship repair, BES and DML areundertaking shipbuilding tasks, and BAE Naval Ships has proposedsharing CVF work with ship repair yards and smaller ship-buildfacilities. In 2000, VT Shipbuilding reached an agreement with FSLmanagement and its respective trade unions that enabled the twocompanies to temporarily transfer personnel. VT plans to use FSL’slabour pool to cover the company’s peak requirements for steel-workers, electricians, engineers/pipe workers, and those in thefinishing trades.

Shipyards Rely on Outsourcing to Varying Degrees

Although outsourcing has increased substantially in the Europeancommercial shipbuilding industry in recent years, UK naval ship-builders have traditionally been unwilling to subcontract to any greatextent, preferring to keep the bulk of the business to themselves.Their rationale has been that outsourcing has not worked well forsophisticated naval shipbuilding projects, pointing to problems thatcommercial shipbuilder Kvaerner experienced in the construction ofthe LPH, HMS Ocean. According to a recent RAND study, there areconsiderable differences in the amount of outsourcing that UKshipbuilders are undertaking.18 As Figure 3.8 shows, Swan Hunter isthe most active user of total outsourcing among the large shipyards. Itworks closely with NEMOC (North East Marine and OffshoreCluster), an alliance of complementary companies located andworking in the Tyneside area. Tasks the company considers forsubcontracting are painting, HVAC, electrical, and insulationinstallation. VT Shipbuilding is the most active user of peak

____________18 Schank et al., (forthcoming). This study found that shipyards employ two types of out-sourcing: total and peak. Total outsourcing involves a shipbuilder subcontracting a completefunctional task, such as electrical, HVAC, or painting to an outside firm. In this case, theshipbuilder retains no in-house labour capability to perform the function, although it mayprovide facilities or material and equipment to the subcontractor. Peak outsourcing occurswhen a shipbuilder uses a subcontractor or temporary labour to augment in-house capa-bilities during time of peak demand, to reduce the shipyard workforce when demandsdecrease if faced with strict national policies limiting the ability to terminate workers, or toaccelerate operations when schedules start to slip.

The Supply of Naval Shipyard Labour in the United Kingdom 77

Figure 3.8Total and Peak Outsourcing Undertaken by UK Naval Shipbuilding andRepair Companies

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Structural blast and prime

Structural fabrication

Painting

Common areas

Accommodations

HVAC

Electrical power distribution

Piping

Machinery

Hull outfit

Food prep/service

Outsourcing key: = Total = Peak (blue: maximum outsourced)

VosperThornycroft Appledore Ferguson Rosyth DMLBAE Systems

SwanHunter

outsourcing. This southern English shipbuilder subcontracts 12percent of total steelwork man-hours and 66 percent of total electricalman-hours. By contrast, BAE is the least active user of total or peakoutsourcing, even though BAE’s Govan site previously madeextensive use of subcontractors when Kvaerner owned it.

A Comparison of the Supply of Naval Workers with theDemand Under Different Future Scenarios

Given the mix of constraints and opportunities faced by the shipyardsin their ability to expand their workforce, how does the potentialsupply of shipyard workers compare with the demand under differentsupply and demand scenarios?

78 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

To answer this question, we built a simple spreadsheet model totry to forecast the labour supply for naval shipyards over the next 17years. Because of the lack of comprehensive and consistent data, wedid not attempt to optimise the labour force for individual shipyards.Instead, we focused on sources of attrition and recruitment identifiedin recent shipyard surveys and compared the total potential supplywithin the industry to the demand under the current MOD planunder several different scenarios.

Three Supply Cases

We examined three cases in our supply side analysis:

1. A ‘no recruitment’ case, in which the current direct workforce19 inthe United Kingdom’s naval shipyards and other firms currentlyinvolved in government shipbuilding was reduced through retire-ment20, long-term incapacity, and other ‘voluntary’ attrition rate(VAR)21, but not through ‘involuntary attrition’ caused by redun-dancies or firings.

____________19 If the direct/indirect workforce figures did not match the total workforce in the shipyardsurveys, the proportions of direct/indirect workers were assumed to be correct and wereapplied to the total workforce reported in the surveys.20 In the model, workers retire according to the workforce age distribution and the averageretirement age reported by the shipyard. If the figures of the workforce age distribution didnot match the total workforce, the proportions of workers in each age range were assumed tobe correct and they were applied to the total workforce reported in the survey. In addition,whenever shipyards did not report an average retirement age, it was assumed to be 65.

Because shipyards reported the age distribution only by ranges (i.e., less than 21, 21–30,31–40, 41–50, 51–60, more than 60), retirements were smoothed to yearly retirements bydividing the total workforce in an age range by the total number of years in that range. Toavoid double counting those who already left the workforce through non-retirement attri-tion, the number of retired per year was reduced through the cumulative attrition rate.21 Two voluntary attrition rates were calculated for each shipyard by averaging its historicalvoluntary attrition: the first for the management/technical category and the second for themanufacturing category.

The Supply of Naval Shipyard Labour in the United Kingdom 79

2. We added apprentices to the projected supply of shipyard work-ers, based on each shipyard’s planned intake of apprentices minusthe estimated number of dropouts from the programme.22

3. We added to the projected shipyard labour supply (plus appren-tices) other potentially available labour from limited pools ofskilled workers, such as temporary and unemployed workers, inthe United Kingdom’s major shipbuilding regions.23 We did not,

____________22 To simplify, we assumed that all dropouts occurred after the first year of the apprenticeprogramme. After their first year, apprentices who had not dropped out were moved into theshipyards’ regular workforce, but only in the following subcategories of workers: technical,structure, and outfitting. (We did not consider managerial or direct support hires in theapprentice case.) The number of apprentices who move into each of these subcategories wasdetermined by their share of the total workforce. After apprentices have moved into theregular workforce, they are subjected to the same attrition rules as every other worker(explained in the no-hire scenario).23 The available pool of workers in each shipbuilding region of the United Kingdom wasestimated using two basic methods. In Scotland and northeast England, the available laboursupply in 2004 was determined by subtracting the existing labour forces of the naval ship-yards in regions from the total number of workers in the shipbuilding-related trade databasesprovided by Scottish Enterprise and Swan Hunter. Because of the lack of regional tradesdatabases that pertain to northwestern and southern England, another method was used toestimate the size of the available labour pool in these regions, which was based on the num-ber of active unemployed. In northwest England, it was assumed that the number of avail-able unemployed shipbuilders relative to the total number of active unemployed was aboutthe same for this region as it was for northeast England: 6 percent. In southeast and south-west England, we assumed that the percentage of available unemployed shipbuilders relativeto the total number of active unemployed was less than that found in northeast and north-west England: 4.5 and 5 percent, respectively. In regions where specific information on theavailable workforce’s skills was lacking, the pools’ distribution across subcategories wasassumed to be the same as the distribution of the shipyards in the pools’ regions . Also, theage distribution of each pool was determined by the age distributions of the shipyards in thepools’ regions, as was the average retirement age of available workers. Each pool’s workforceattrition was estimated using the same attrition rules that were applied to shipyards in itsregion. In the case of regions that contain more than one shipyard, the VAR was calculatedby the average of the VARs of the shipyards in that pool. Each year, the naval shipyards addworkers from their regional pool, and these numbers are not replaced in the pool. If thenumber of available workers in any pool becomes less than the sum of the recruitment ceil-ings for the shipyards in that region, shipyards recruit the remaining workers proportionallyto the size of their workforces. Once the pool of unemployed workers is zero for any laboursubcategory, shipyard recruitment in that subcategory becomes zero from that year on.Workers recruited by a shipyard from the available labour pools retire according to the sameretirement rules that apply to the shipyard’s original workforce.

80 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

however, include redundant workers in the offshore oil industryin northern Scotland.24

Based in part on what we have learned from our research on theUS shipbuilding industry, we initially decided to restrict the numberof a shipyard’s annual recruits (apprentices plus available workers)either to the average of the previous five years or to 8 percent of itsworkforce in the previous year, whichever was less.25 However,because of uncertainty regarding the ability of UK shipyards toabsorb a large number of workers in a short period, we also decidedto perform an excursion of the third case in which all the shipyardswere allowed to grow at a rate of 8 percent per year.

Shipyard Labour Supply Model

Figure 3.9 provides a graphical summary of the shipbuilding laboursupply modelling process. To reiterate, we started with the pool oflabour in the United Kingdom’s naval shipyards in 2004, subtractedthose that were expected to depart the shipyards, added workersexpected to complete their apprentice programmes, and then addedother potentially available workers with skills relevant to shipbuild-ing.

Figure 3.9Shipyard Labour Supply Model

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2004Headcount

(direct workersin naval

shipyards)

- =++Attrition

(retirement,disability,

other)

Apprentices

(workers whohave completed

apprenticeprogrammes)

OtherWorkers

(with relevantskills)

ProjectedLabourSupply

____________24 According to the Highlands and Islands Enterprise skills database, this group consisted ofapproximately 2,400 workers in February 2003.25 In recent years, of the naval shipyards, only Swan Hunter has an average recruitment ratethat exceeds 8 percent.

The Supply of Naval Shipyard Labour in the United Kingdom 81

We combined the results of the additions and reductions to thelabour force to derive a forecast for a particular year. Then we plottedthese outcomes over 17 years to obtain a total picture of the potentialnaval shipyard labour force in the United Kingdom from 2004 to2020. Finally, we compared the potential supply picture in the threecases with the projected total demand under the current MOD planand the level-loading scenario described in the previous chapter (seeFigure 3.10).

Results of the Shipyard Supply Analysis

This section shows the results of the three shipyard labour supplycases described above. In the no-recruitment case, we determined thatthe direct workforce in the naval shipyards could decline by almost

Figure 3.10A Comparison of the Shipyard Labour Supply and Demand, 2004–2020

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Objective

Compareprojected

labour supplywith labour

demandfor years

2004–2020

Potential Naval Shipbuilding Labour Force,2004–2020

Labour Demand

20042005. . .. . .

. . .

2020

Labourprofiles

Ship buildduration

Shipyardlearning

Ship classinformation

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2004Headcount

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shipyards)

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82 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

65 percent by 2020 through retirement, incapacity, and voluntaryattrition. As Figure 3.11 indicates, the number of workers in themanagement and technical and manufacturing skill categories woulddrop from nearly 14,000 workers to around 4,800 in the next 17years if no steps were taken to replenish the workforce, through hir-ing either apprentices, temporary workers, older workers from otherindustries, or going through the ranks of the unemployed.

In Figures 3.12 through 3.14, we compare the potential supplyof direct naval shipyard workers in our two recruitment cases with thedemand under the current MOD plan and the level-loading scenario.In each figure, the light blue line represents the case in which (afteraccounting for worker attrition) we added apprentices to the navalshipyards. The grey line represents the projected supply plus appren-tices and the pool of available workers with skills relevant to ship-

Figure 3.11Projected Shipyard Labour Supply by Skill Category Without AdditionalRecruitment, 2004–2020

Dir

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hea

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Year’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20

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2,000

ManufacturingManagement and technical

The Supply of Naval Shipyard Labour in the United Kingdom 83

building. The dark blue and black lines represent the industrywidedemand for workers under the current MOD plan and our level-loading scenario, respectively.

Figure 3.12 shows the results of the two recruitment cases in thesituation in which annual shipyard recruitment is held to the histori-cal average or 8 percent of the previous year, whichever is less. It indi-cates that the overall supply of management and technical workerswould probably be sufficient, even in peak periods, if the naval ship-yards were able to recruit from the pool of workers currently outsidetheir industry. However, the naval shipyards may have troubleretaining management and technical workers in periods of decreaseddemand—for example, from 2004 to 2006 and from 2010 to2014—particularly under the current MOD plan. Level-loadingwould reduce the demand during the peak and thus increase the mar-gin of safety in terms of the supply. The drop in near-term demand,however, would still pose a problem for the industry under this sce-nario.

Figure 3.12Forecast of the Naval Shipyard Management and Technical Workforce:Minimised Recruitment

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Projected demand (Current Plan)Projected demand (Level-Loading Scenario)Projected supply (2004 Headcount – Attrition + Apprentices)Projected supply (2004 Headcount – Attrition + Apprentices + Other Workers)

2004 2006 2008 2010 2012 2014 2016 2018 2020Year

84 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Figure 3.13 shows that the naval shipyards may have troublemeeting the demand for manufacturing workers in the 2007–2011peak period if annual recruitment is kept to the historical average or 8percent. This problem will undoubtedly be worse for particular ship-yards, especially those in southern England but also in the Glasgowand Tyneside regions. The problem is not so much related to theavailability of workers—especially in Scotland—as it is to constraintson the ability of the shipyards to rapidly absorb a large influx ofworkers in a short amount of time. In BAE’s case, the problem couldbe alleviated by shifting workers from Barrow, where demand is lessand supply ample, to the Glasgow yards, which will soon experience alarge increase in demand for workers.

It will still be difficult to satisfy the need for manufacturingworkers during the peak period even under the levelled demand sce-nario (see Figure 3.13). However, the supply situation would signifi-

Figure 3.13Forecast of the Naval Shipyard Manufacturing Workforce: MinimisedRecruitment

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Projected demand (Current Scenario)Projected demand (Level-Loading Scenario)Projected supply (2004 Headcount – Attrition + Apprentices)Projected supply (2004 Headcount – Attrition + Apprentices + Other Workers)

The Supply of Naval Shipyard Labour in the United Kingdom 85

cantly improve over the current demand scenario. In the most opti-mistic supply case, the current demand scenario would lead to ashortage of more than 1,000 workers in 2009. However, level-loadingwould reduce the demand-supply gap to fewer than 100 workers in2011, which could be closed through productivity improvements,increased overtime, and/or outsourcing.

As Figure 3.14 indicates, even the current plan could beachieved (or nearly so) if the naval shipyards were able to expand theirworkforces at an annual rate of 8 percent. Although a few UK ship-yards, such Swan Hunter and DML, have grown at this rate or betterin recent years, most major shipyards have traditionally expanded at aslower pace, and it is uncertain whether the entire industry couldgrow so quickly, especially if the yards had to assimilate a significant

Figure 3.14Forecast of the Shipbuilding Manufacturing Workforce: 8 PercentRecruitment Rate

Projected demand (Current Scenario)Projected demand (Level-Loading Scenario)Projected supply (2004 Headcount – Attrition + Apprentices)Projected supply (2004 Headcount – Attrition + Apprentices + Other Workers)

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86 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

number of inexperienced workers into their ranks. That said, ouranalysis shows that increased work-sharing among the naval shipyardsand/or increased interregional mobility of shipyard labour could helpto alleviate shortages in specific locations during peak periods, giventhe variability of potential worker demand and supply in individualshipyards over the next 17 years.26

Concluding Observations

Our analysis led us to several concluding observations regarding theUnited Kingdom’s shipbuilding and repair labour supply:

• The number of management/technical and manufacturingworkers employed in naval shipbuilding and repair have heldrelatively steady in recent years, despite the long-term decline inthe shipbuilding and repair industry as a whole.

• The naval shipyard labour force is ageing and will severelydecline over the next couple of decades without continued,steady recruitment—a trend that UK shipbuilding experts havenoted for some time and that our recent shipyard survey con-firmed.

• Although there is no immediate labour shortage, the shipyardsthemselves have told us that they are concerned about the futureavailability of particular skills (e.g., design, electrical, test andcommissioning) as well as the upcoming surge in demand formanufacturing labour, such as steelworkers.

• Despite obstacles to increased recruitment, naval shipyards couldpotentially tap several pools of labour in related industries, suchas offshore construction and commercial shipbuilding, andamong the unemployed. They could also continue the trendtowards greater outsourcing.

____________26 Because of business sensitivities, we are unable to provide specific information on thepotential demand and supply situations in particular shipyards.

The Supply of Naval Shipyard Labour in the United Kingdom 87

• Acknowledging the limits of our data and the degree of un-certainty regarding the ability of the shipyards to rapidly absorbnew workers, we believe the naval shipbuilding and repair indus-try will have a difficult time meeting the increased demand forwarships over the next couple of decades. Levelling the demandcan lessen this difficulty, but it will still exist, particularly in cer-tain regions and shipyards, unless work-sharing arrangementsare established. At best, meeting the demand will require a highdegree of cooperation and work-sharing between the shipyards.

89

CHAPTER FOUR

Facilities Utilisation at the UK Shipyards

The United Kingdom today is home to a finite number of firms thatproduce and repair naval ships or submarines. Many other commer-cial firms in the United Kingdom have facilities that could be used inthe future to help accommodate the current and projected pro-grammes. Do these firms have the capacity to produce the future fleetin the time frames specified by the MOD?

The previous two chapters addressed one aspect of this questionthrough an analysis of the labour supply and labour demand. Thischapter evaluates how current facilities at UK shipyards may or maynot have the capability to produce the future fleet. At any pointthroughout the build process, production could be slowed or haltedas a result of any number of facilities constraints. These potentialproduction limitations could be issues related to throughput or facil-ity availability. Both issues will be explored in this chapter.

Ship Production Facilities and Phases

The production of a ship or submarine involves numerous facilities,including a wide range of shops, cranes, specialised equipment, docks,and piers. Producers employ facilities at different times, in differentsequences, and in different ways, depending on the platform beingbuilt, yard organisation or layout, build strategy, and many other fac-

90 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

tors. Figure 4.1 depicts the three production phases we refer to in thisanalysis, with each phase corresponding to particular facilities itrequires. These are not the traditional shipbuilding phases commonlyknown and used throughout the industry (i.e., design, production,outfitting, test, commissioning, and trials). Nevertheless, we definedthese phases because the traditional categorisations did not allow us toadequately map the use of particular facilities. Figure 4.1’s black areacorresponds to the pre–final assembly phase, the light blue to thefinal assembly (FA) phase, and the dark blue to the afloat outfitting(AO) phase.

The pre–final assembly phase entails a manufacturing periodbefore final assembly of blocks and modules begins, that is, the periodbefore the ship occupies an assembly location. During this time,facilities such as pipe fabrication shops, unit assembly areas, lay-downareas, and steel fabrication shops are used. Final assembly beginswhen a producer starts assembling the ship using a facility such as adry dock, floating dock, slipway, land-level area, or ship assemblyhall. Afloat outfitting begins when a ship is launched or floated andends when the ship is delivered. A ship in the AO phase wouldrequire a pier, quay, lock, or a dock.

There is some overlap in use of different facilities throughouteach phase. In many cases, certain facilities—cranes, shops, or fabrica-

Figure 4.1Ship Production Timeline

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Pre–Final Assembly

Final Assembly Afloat Outfitting

• Dry docks

• Floating docks

• Slipways

• Land-level areas

• Ship assembly halls

• Shops

• Cranes

• Piers

• Quays

• Locks

• Any location specified as such

Facilities Utilisation at the UK Shipyards 91

tion facilities associated with the pre–final assembly—are usedthroughout the FA and AO phases. Generally, the FA and AO phasesare mutually exclusive, but sometimes an FA facility will be used foroutfitting.

How We Studied Facilities and Phases

We focused our evaluation of facility throughput on the FA and AOfacilities for two main reasons:

1. There was a lack of consistent measures of throughput for theother types of facilities. For facilities such as shops, it is very diffi-cult to devise objective measures of throughput. The number ofpipes that a pipe shop can manufacture, for example, depends onthe complexity of each unit, length, diameter, number of bends,etc. Thus, simply stating the number of pipes per day as capacitycould be misleading.

2. Consistent measures of throughput would require a prohibitiveamount of data from the shipyards. For the example of a crane,the throughput depends on where the crane is located in the yard,what the build strategy is of the programme that will utilise thatcrane, and how easily the crane can be moved or how easily sup-plemental cranes can be brought in. Each unit lift must be trackedand assessed. This information would be needed for each crane,lift, and vessel in the yard. Such a data collection was beyond thescope and means of this study and would have placed an undueburden on the shipyards providing information.

As part of the broader survey to the shipyards, we requestedinformation on the number and types of their facilities and on thetimings of the programmes they were or are expecting to be engagedin. Each shipyard identified its specific facilities related to ship pro-duction. The shipyards also provided the size of the largest ship thateach facility could accommodate (length, beam, and draught). Thefirms included as part of this survey are BAE Systems, BES, DML,

92 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Ferguson, FSL, KBR Caledonia, Swan Hunter, and VT Shipbuilding.In addition, we included facility information based on prior work forthe MOD. These facilities included those from A&P Group, somefacilities associated with the former Cammel Laird yards, and Har-land and Wolff.

Identifying Demand and Assigning Facilities to Phases

To determine whether there were potential capacity limitations of theFA and AO facilities, we first had to assess when programmes wouldrequire particular facilities and compare these demands to the num-ber of facilities available. We split each programme into the threephases identified in Figure 4.1. Then, we identified the specific facili-ties that would accommodate final assembly and afloat outfitting foreach programme. Next, we calculated the total demand for each ofthese facilities on a quarterly basis and compared it with the capacityof those facilities. A detailed example of how this analysis unfolds willbe shown later in the chapter.

Only a few programmes in the current MOD acquisition planthat we discussed in Chapters One and Two have been allocated to aparticular location (or facilities). In some cases, such as for the Type45, we know (for the most part) which facilities the programme willuse. In other cases, such as for the CVF, we have only notional ideasabout the build strategy and the possible allocation of work amongthe shipyards. In other instances, such as for MARS, we do not havedefinitive information of the dimensions of ships that will be built orthe shipyards that might be involved in construction. Therefore, forthe programmes with more defined information, we can undertake amore detailed evaluation.

For programmes with little definitive information, our resultsare speculative, and we explored multiple, possible locations. In casesin which we knew the yard a programme will go to but not necessar-ily the facility, we made notional allocations based on size constraints:Large ships go to large facilities, small ships to small facilities. In casesin which the yards or IPTs indicated that specific facilities will beused by a programme, we used those assumptions.

Facilities Utilisation at the UK Shipyards 93

Final Assembly Facilities’ Capacity and Considerations

The survey responses and supplemental data indicate that there areapproximately 48 FA facilities and 37 AO facilities that are currentlyor could be used to process future production workload.1 These FAfacilities include those that may have planned upgrades to accommo-date future work. However, for this analysis, we used the facilities’current sizes, not their new sizes. Not included in this count are newfacilities that do not currently exist but which will be built toaccommodate future programmes should the yards be assigned thework.

Figure 4.2 shows the distribution of the maximum length ofship that can be accommodated by a particular FA facility. The barsrepresent the number of facilities in different ranges of maximum

Figure 4.2Distribution of Final Assembly Facility Lengths

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Freq

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16

0101–150 151–20051–100

Length (metres)

1–50 201–250 251+

14

12

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8

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4

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OtherNaval repairNaval shipbuilder

____________1 It should be stressed that this sample is smaller than the total available in the United King-dom.

94 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

length. The data are further segregated into three categories by theowner of the facility:

• Naval shipbuilder—facilities owned or leased by BAE Systems,Swan Hunter, and VT Shipbuilding

• Naval repair—facilities owned or leased by BES, DML, and FSL• Other—facilities owned or leased by other firms.

For example, 20 total facilities in the sample can accommodate vesselslonger than 200 metres. Of those 20, six are those of the naval ship-builders, five are of the naval repair yards, and nine are from the restof the industry.2

Figure 4.3 shows the distribution of the largest beam that can beaccommodated by the FA facilities. Larger ships, such as the CVF,will require facilities with beams greater than 30 metres and lengthsgreater than 200 metres. Some RFA ships, such as Fort Victoria, havealso required very large FA facilities.

Only the very largest of ships require a draught greater than 12metres. In most cases, such a deep draught represents a ship in a fullyloaded condition. Most naval ship construction programmes requirefacilities with more-modest draughts. As Figure 4.4 shows, 25 facili-ties can accommodate ships with draughts between 5 and 10 metres,while 14 facilities can handle ships requiring deeper draughts.3

Although the distributions of the individual metrics are insight-ful, the combination of all three metrics determines whether a facilitycan be used. If the length, beam, or draught is insufficient, the vesselcannot utilise the facility. Table 4.1 depicts a matrix, showing the

____________2 It should be noted that the data available for the ‘other’ firms are heavily weighted towardsthe larger facilities. So no inferences should be drawn concerning the lack of smaller facilitiesat the other firms.3 Of the 48 FA facilities, two are ship assembly halls and six are refit bays. These eightfacilities have height restrictions, but no draught measurement. We did not eliminate thesefacilities but gave them default values of ‘not applicable’.

Facilities Utilisation at the UK Shipyards 95

Figure 4.3Distribution of Final Assembly Facility Beams

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Beam (metres)

6–10 26–30 31+

16

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OtherNaval repairNaval shipbuilder

Figure 4.4Distribution of Final Assembly Facility Draughts

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016–20 N/A11–15

Draught (metres)

6–101–5

25

20

15

10

5

OtherNaval repairNaval shipbuilder

96 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Table 4.1Number of Final Assembly Facilities at Naval Shipbuilders That CanAccommodate a Ship with a Given Beam and Length

Vessel Length (m)50 100 150 200 250

10 14 13 10 6 315 13 12 10 6 320 12 11 9 6 325 8 7 6 6 330 4 4 4 4 335 3 3 3 3 340 3 3 3 3 3V

esse

l bea

m (

m)

45 0 0 0 0 0

number of facilities that can accommodate a ship length of at leastthe value in the top row, and a ship beam of the value in the left col-umn for the naval shipbuilders.

For example, 14 FA facilities can accommodate a ship with alength of 50 metres and a beam of 10 metres. Conversely, three facili-ties can accommodate a ship with a length of 200 metres and a beamof 35 metres. It is interesting to note that the median FA facility sizeat the naval shipbuilders is geared towards a frigate-sized vessel.4 Thisfact should not be surprising given the fact that frigates andmine/costal craft comprise the majority of the surface combatant fleet(by number of hulls). Thus, the naval shipbuilding facilities are‘matched’ to the size of the existing fleet.

Table 4.2 shows the combined distribution for the naval shiprepairers and the other firms. These two groups have several FA facili-ties that can accommodate larger ships.

Afloat Outfitting Facilities Capacity Considerations

AO facilities follow a slightly different pattern. As shown in Figure4.5, the distribution of AO facility lengths indicates that nearly half

____________4 Sizes of these vessels can be found in Appendix B.

Facilities Utilisation at the UK Shipyards 97

Table 4.2Number of Final Assembly Facilities at Naval Repair and Other Firms ThatCan Accommodate a Ship with a Given Beam and Length

Vessel Length (m)50 100 150 200 250

10 33 22 15 14 1215 33 22 15 14 1220 19 18 15 14 1225 18 17 15 14 1230 13 13 13 13 1135 9 9 9 9 940 8 8 8 8 8V

esse

l bea

m (

m)

45 4 4 4 4 4

Figure 4.5Distribution of Afloat Outfitting Facility Lengths

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0101–150 151–20051–100

Length (metres)

1–50 201–250 251+

9

8

7

6

5

4

3

2

1

OtherNaval repairNaval shipbuilder

have a length greater than 200 metres. Unlike most FA facilities, mul-tiple vessels can easily use a single AO facility at one time. Thus, thelonger the length, the more flexible the facility is for afloat outfitting.

98 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Over half the AO facilities have a beam greater than 30 metres(see Figure 4.6). This distribution results from the fact that manyoutfitting quays lie directly on a river, channel, or harbour, wherewidth is not an issue. Thus, the beam of the ship for AO facilities isnot a significant constraint at most locations.

One consequence of having AO facilities at a tidal location isthat the maximum draft can be limiting. As Figure 4.7 shows, themode of the AO facility draught is between six and ten metres. Thir-teen of the facilities have a draught capacity of greater than 10 metres,while 19 facilities support draughts of between 6 and 10 metres.

As with FA facilities, the length and beam of AO facilities arehighly correlated. Table 4.3 portrays a similar matrix as Table 4.1,showing data for AO facilities at the naval shipbuilders. Table 4.4displays the same data for the naval repair and other firms. Note thatthere are only a few AO facilities that have the capacity to accommo-date large ships with beams greater than 30 metres and lengths greaterthan 200 metres. Again, some care must be taken because of draughtrestrictions.

Figure 4.6Distribution of Afloat Outfitting Facility Beams

Freq

uen

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25

016–20 21–2511–15

Beam (metres)

6–10 26–30 31+

20

15

10

5

OtherNaval repairNaval shipbuilder

Facilities Utilisation at the UK Shipyards 99

Figure 4.7Distribution of Afloat Outfitting Facility Draughts

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20

016–2011–15

Draught (metres)

6–101–5

18

16

14

12

10

8

6

4

2

OtherNaval repairNaval shipbuilder

Table 4.3Number of Afloat Outfitting Facilities at Naval Shipbuilders That CanAccommodate a Vessel with Certain Length and Beam Characteristics

Vessel Length (m)50 100 150 200 250

15 15 15 10 8 420 15 15 10 8 425 10 10 9 7 330 6 6 5 4 135 3 3 2 1 040 3 3 2 1 0

Ves

sel b

eam

(m

)

45 3 3 2 1 0

100 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Table 4.4Number of Afloat Outfitting Facilities at Naval Repair and Other Firms ThatCan Accommodate a Vessel with Certain Length and Beam Characteristics

Vessel Length (m)50 100 150 200 250

15 21 19 16 11 520 21 19 16 11 525 18 16 15 11 530 15 14 13 9 535 13 12 11 8 440 11 10 9 7 3

Ves

sel b

eam

(m

)

45 11 10 9 7 3

Capacity Implications for Future Programmes

Much of the data we used for this analysis are sensitive and are notfor publication. We performed our analysis on a yard-by-yard basisand results and conclusions were specific to facilities and shipyards.All the workload being placed on a particular yard was comparedwith the capacity of the facilities within that yard.

Our analysis reveals two main causes of potential facilities prob-lems in the naval shipyards: One problem was caused by a lack of FAor AO facilities of a particular size; the other was caused when thedemand for a particular sized facility exceeded its capacity. In somecases, there was simultaneous demand from several ships for a singlefacility that could only accommodate one ship at a time. The remain-der of this section will discuss the implications of facilities for each ofthe major future programmes that will place a demand on these 48FA and 37 AO facilities.

We will show the detail of how this analysis was performed onlyfor the first programme: the Type 45.5 For the remaining cases, wewill present only the conclusions and highlights of the analysis.____________5 In this case, the requirements for FA and AO facilities for ships one through six were laidout. Then, we observed capacity requirements for FA and AO facilities on a quarterly basis.(The capacity requirement refers to the total capacity required to accommodate demand inthe yard. If three ships each require an FA facility, then the capacity requirement is three.)

Facilities Utilisation at the UK Shipyards 101

Type 45

As noted, there is currently a contract for six Type 45 ships with BAESystems and VT producing the ships. We show the planned distribu-tion of work between the shipbuilders in Figure 4.8.6 VT Shipbuild-ing will build two blocks of the ship (E and F) as well as the super-structure. The BAE Systems Clyde yards will be responsible for theremaining block structures.

The VT Type 45 blocks require an assembly location for manu-facture. VT has indicated that the blocks will be constructed in itsnew ship assembly hall, which has two build lines, each with differentdimensions and therefore different capacities. The first build line hasa capacity for up to two Type 45 bow sections at the same time (in

Figure 4.8Type 45 Work Allocation

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Block A Block D Block E Block FMega-block B + C

VT

BAE Marine

______________________________________________________This allowed us to compare the capacity requirement with the capacity of either the facilitiesspecified as potential Type 45 facilities or facilities that were of the size to accommodate sucha programme.6 Birkler et al. (2002).

102 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

different stages of build); the other line has a capacity for approxi-mately one ship of OPV(H)/Corvette size.7

The first-of-class Type 45 will be assembled and launched atScotstoun, up on the Clyde. The remaining ships will be assembledand launched at Govan and Scotstoun on the Clyde.8 FA and AOphases of the build at BAE will require facilities that can accommo-date a ship with a length of 152.4 metres, a beam of 21.2 metres, anda draught of 5.0 metres.9 Three facilities on the Clyde, at Scotstounand Govan, can accommodate a ship of this size. Two of these facili-ties are docks, and the other is a slipway. We do not have detailedplans of how these three facilities will be utilised for Type 45 produc-tion.

To determine whether there would be any complications relatedto these facilities, we laid out Type 45 facilities requirements over thetime periods in which an FA and AO facility will be required at VTand on the Clyde. For example, in the fourth quarter of 2005, thereare blocks for three hulls being built by VT. We compared theserequirements with the facilities that are available to accommodatethese requirements. The prospective build location at VT—the shipassembly hall—has the capacity in build line one for up to two Type45 bow sections, and the other build line has the capacity for a wholeship of the size of a Future Offshore Patrol Craft, or Corvette. Weshow the total number of FA facilities capacity required, by quarter,at VT in Figure 4.9.

The maximum number of facilities required in any given quarteris three, but generally, the demand is for one or two facilities. Twothings should be noted in this data display. First, Figure 4.9 showsonly the facility demand that is coming from the Type 45 pro-gramme. Any other work in the yard that would place a demand on

____________7 As indicated in survey response.8 These dates as well as much more information about the Type 45 programme can beobtained at the following Type 45 IPT Web site: www.baesystems.com/type45/index.htm(last accessed November 2004).9 Dimensions taken from Royal Navy (2003).

Facilities Utilisation at the UK Shipyards 103

Figure 4.9Final Assembly Facilities Requirements for Type 45 Programme:VT Shipbuilding

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4

3

2

1

02004 2005 2006 2007

Year2008 2009 2010

the ship assembly hall at the same time as the Type 45 block builds isnot shown. Second, changing the resolution of the time measurementfrom quarters to months may alleviate some of the single quarterspikes in required capacity. That is, the requirement for a facilitycould start or end midway through a quarter and not actually overlapwith another ship.

If both assembly lines in the ship assembly hall are used to con-struct the Type 45, these brief periods of demand for a capacity ofthree can be easily accommodated. However, if only the assembly line(which can accommodate up to two Type 45 bow sections) is used,then the yard may not be able to accommodate the periods in whichthere is a brief capacity requirement of three.

The FA facilities requirement at BAE is similar to the require-ment at VT. As shown in Figure 4.10, there are three quarters inwhich there is a requirement for three FA locations each with acapacity for one ship, or one FA location that has the capacity forthree ships. In most quarters, the capacity requirement is for one ortwo FA locations.

104 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Figure 4.10Final Assembly Facilities Requirements for Type 45 Programme:BAE Systems

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Req

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4

3

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1

02004 2005 2006 2007

Year2008 2009 2010

There are three FA locations on the Clyde, each large enough tohandle one Type 45. It is unclear how these facilities will be utilisedor if there are other factors such as craneage or logistics complicationsthat would prevent any of these facilities from being used. However,each of the three facilities is large enough to accommodate a Type 45vessel. If all three facilities are used to build these vessels, then the FAfacilities will not be a limiting factor. The total number of availablefacilities that could accommodate the Type 45 builds in any quarteris equal to or greater than the maximum demand in all quarters. Iffewer than all three facilities can be used, the facilities would limitthroughput of Type 45 to less than that planned.

As mentioned above, it is possible to use FA facilities for afloatoutfitting as long as the ship can easily come in and out of the facility.For example, a ship could be launched from a dry dock, floated out,tested, and returned to the dock for outfitting. However, this is notfeasible to do on a slipway.

Facilities Utilisation at the UK Shipyards 105

The AO facilities as defined in this text are not required at VTfor the Type 45 programme because the blocks will be floated out onbarges and shipped to the Clyde yards. However, there is a require-ment for these facilities at the Clyde yards. The AO period in Figure4.11 includes some sea trials in which the facility will not be utilised.However, the facility needs to be available for the duration of theperiod. The figure shows the number of facilities (each with a capac-ity for one ship) that will be required for afloat outfitting, in eachquarter.

In several quarters, the maximum requirement is for two AOfacilities, which, again, is the facilities demand from the Type 45 pro-gramme only. Any other demand in the yard for the AO facilitieswould increase the total demand by quarter. There is likely to be twoAO facilities available, each with the capacity for one Type 45.10 Oneof these facilities may be unavailable because of other work to be

Figure 4.11Afloat Outfitting Facilities Requirements for Type 45 Programme:BAE Systems

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02004 2005 2006 2007

Year2008 2009 2010

____________10 This assumes that other AO facilities at the shipyards are converted for CVF production.

106 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

done in the yard, leaving one facility to accommodate the AOdemand. If docks are used as AO facilities, in addition to their FArole, the total capacity for outfitting of Type 45 would exceed themaximum demand in each quarter. However, a detailed schedulinganalysis would be required to determine whether such a problemactually exists and to suggest mitigation solutions.

CVF

There are currently plans to build two new aircraft carriers to replacethe retiring Invincible-class carriers. Although the design, size, andbuild strategy of these new carriers have not yet been specified, theMOD has stated that

initial indications suggest that the carriers could be amongst thelargest warships ever built for the [Royal Navy]. Studies to dateindicate that potentially a combination of four UK yards (BAESystems at Govan, Babcock BES at Rosyth, Swan Hunter in theNorth East and VT Shipbuilding in Portsmouth) offers the bestway forward for the build of the carriers, although the use ofother UK yards has not yet been ruled out.11

If CVF work is split between the yards, then some form of ablock build strategy would likely be employed. The proportion ofwork that would go to any of the possible locations is unknown, butthe size of the blocks could be significant given the potential size ofthe ship. Overlapping block builds may pose a potential problem foryards. Our survey indicates that many yards would have to build newfacilities or upgrade existing facilities to accommodate the manufac-ture of blocks. It is unclear whether all the yards have the capabilityto make upgrades such that multiple simultaneous blocks can beaccommodated.

In addition to overlapping block builds, overlaps of integrationand block builds could pose capacity problems. If the same facility____________11 This information comes from the MOD’s Web site (‘Project Fact Files: Future AircraftCarrier [CVF]’, updated 28 September 2004, www.mod.uk/dpa/projects/cvf.htm, last ac-cessed November 2004).

Facilities Utilisation at the UK Shipyards 107

used to assemble the CVF is also required to assemble a block, thecurrent schedule may have to be modified. However, creative solu-tions could be employed to resolve these types of potential conflicts,such as storing blocks on-site until they are required for integration orutilising two adjacent docks and floating the block to the integrationlocation when completed.

The CVF could be one of the largest warships ever built in theUnited Kingdom. Few FA and AO facilities could currently accom-modate such a ship, and these facilities all would require some kind ofinvestment, upgrade, and/or reactivation.

MARS

The MARS programme is pre–Main Gate. As such, the exact quan-tity and sizes of the ships have not yet been formally stated. To evalu-ate future demand on FA and AO facilities, we will use as a proxy thenumbers and dimensions of the RFA ships that MARS will replace.

According to the Royal Navy, the RFA ships up for replacement‘include ageing Rover class small fleet tankers, some of the larger sup-port tankers and the stores ships RFA Fort Austin and RFA FortRosalie.’12

Table 4.5 displays the dimensions of these ships the MARS pro-gramme will replace. As an upper bound on the size of any potentialship is the ‘Panamax’ capable size, that is, the maximum sized shipthat can fit through the Panama Canal. The maximum length of aship that has ever passed through the Panama Canal was 299 metres.The maximum beam of a ship ever to pass through the canal was32.6 metres.13

The possible replacement ships have a wide range of sizes. Thespecific requirements for length, beam, and draught as well as otherUK programme requirements will determine the possible FA and AOfacilities that can accommodate the programme. In general, ships that

____________12 Royal Navy (2003, p. 14).13 Lloyd’s Register (2004).

108 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Table 4.5Ships Replaced by MARS

Length (metres) Beam (metres) Draught (metres)

Rover class 140.5 19 7.32

Larger support tankers(Brambleleaf, Bayleaf,Orangeleaf) 170.7 26 11

Fort class(Fort Austin, Fort Rosalie) 185.1 24 9

have a length greater than 200 metres, a beam greater than 30 metres,and a draught greater than 7 metres will have several choices for finalassembly. However, most of these facilities are at a location not cur-rently engaged in shipbuilding. It must also be kept in mind that theMARS ships will have significant cargo capacity; thus, the draughts ina light-ship condition will be less than that in a fully loaded condition(as shown in Table 4.5). In summary, the smaller the replacement forthe retiring classes of RFA ships, the more FA facilities there are toaccommodate production. AO facilities might be limiting if deepdraughts are necessary.

In terms of the number of facilities required for the MARS pro-gramme, this number will depend on the number of ships produced,the period needed in an FA location (related to the build duration),and desired delivery schedule. For example, a hypothetical case of 10ships, taking one to one-and-a-half years to assemble, with a deliveryperiod of one ship per year would equate to roughly one to two shipsin assembly, on average, at any given time. Thus, it is likely that atleast two assembly points will be needed for MARS.

Astute

BAE Systems serves as the prime contractor for the Astute class andwill build the vessels at its Barrow facility, the home of BAE SystemsSubmarines. The facility that will be used for the FA phase of thebuild is the Devonshire Dock Hall (DDH). The DDH has two buildlines, with a total maximum capacity of four submarines in progress.The DDH’s optimal capacity is approximately three submarines in

Facilities Utilisation at the UK Shipyards 109

different stages of the build process.14 Current and future build plansdo not place a requirement of more than this capacity on the DDHin any quarter. There is ample AO facility capacity at Barrow for theprogramme.

LSD(A)

Four LSD(A) ships have been procured. Swan Hunter is building twoat its Wallsend location, and BAE Systems is constructing the othertwo on the Clyde. The LSD(A) requires FA and AO facilities that canaccommodate a length of 176 metres, a beam of 26.4 metres, and adraught of 5.8 metres.

The Swan Hunter Wallsend location has one FA facility andample AO facility capacity for the LSD(A).

BAE Systems has two FA facilities that can accommodate theLSD(A) programme on the Clyde. The LSD(A) is scheduled to bebuilt before the Type 45. The first ship being built at BAE, MountsBay, is scheduled to be launched in early April 2004, after which thefinal assembly of the Cardigan Bay will begin.15

If the last LSD(A) is launched during the same period in whichthe CVF and Type 45 are being constructed (and that the Type 45 isbuilt according to the stated timetable) there could be a capacityproblem with AO facilities at BAE, unless available docks are alsoused for outfitting purposes. The utilisation of these FA and AOfacility resources will have to be carefully planned and scheduled tobalance the work in the yard.

Future Surface Combatant

The FSC, which will replace the retiring Type 22 and Type 23 ships,is still in the concept phase, so its design and construction start datesserve as rough estimates. No work has been assigned to any particularyard; however, it is possible that the potential number of these ships____________14 As reported by BAE in its survey response.15 ‘Mounts Bay Awaits Easter Launch Date’ (2004).

110 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

planned for production could substantially affect FA and AO facilityavailability.

In our analysis, we assumed that the FSC would be about thesame size as the Type 23, with a length of approximately 133 metres,a beam of approximately 16.1 metres, and a draught of approximately5 metres. A ship with these dimensions would have many facilitieschoices. About half of the FA facilities and most of the AO facilitiescould be used. Whether there is a facilities capacity problem willdepend on the total demand for the facilities in the United Kingdomat the time of production and the number of producers. However,based on the current plan, the demand for production facilities willgenerally be low when the FSC is in production and facility availabil-ity should not be an issue.

Joint Casualty Treatment Ship

The JCTS will replace the RFA Argus. Because the JCTS does not yethave a specific design, we used RFA Argus dimensions to assesscapacity of FA and AO facilities. The length, beam, and draught, are175.1, 30.4, and 8.1 metres, respectively. About a third of the FAfacilities could accommodate a ship with these size characteristics.16

However, most of these facilities are not at one of the naval ship-builders. Eight of the AO facilities can accommodate a ship that size.

Summary

Whether there will be a facility problem depends on the size charac-teristics of the ship, which yard(s) the programme goes to, and theother demands that will be placed on the same facilities in thatyard(s) at the same time. If two ships need to simultaneously use aspecific resource, there will be a capacity problem. If the two shipscan use the facility sequentially, there will not be a capacity problem.____________16 The number of possible FA facilities for JCTS could be greater as the light-ship draughtof the vessel will likely be less than 8.1 metres.

Facilities Utilisation at the UK Shipyards 111

Figure 4.12 shows a global view of the facilities demand in eachquarter across for the MOD ship programmes.17 The maximumnumber of facilities required in any given quarter is less than the totalnumber of facilities available for both FA and AO facilities.

Despite the fact that there appears to be an excess of facilities, acapacity problem could still occur. Again, the size of the vessel andbuild strategy restricts the location for afloat outfitting and finalassembly. Much of the future programmatic demand is for largerships, which can be accommodated at only a few FA or AO locations.However, a high total demand in each quarter does not necessarilyimply a potential capacity problem. There could be a demand for 16facilities in a single quarter, but if the demand were based on small-to medium-sized vessels, there would likely be no capacity problem.

Figure 4.12Final Assembly and Afloat Outfitting Facilities Requirements for MODShips, 2004–2020

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2004 2006 2008 2010 2012 2014 2016 2018 2020Year

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FA facilityrequirement

AO facility requirement

Total numberavailableFA: 48AO: 37

____________17 Note that the demand does not include all refit, refuelling, and repair work. These datawere considered sensitive and thus not available to this study.

112 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Conversely, the demand for just two facilities in one quarter could beproblematic if the ships were of such a size that only one facilitycould accommodate the ships.

For the current and planned MOD programme, the total num-ber of FA and AO facilities appears, on the surface, adequate to han-dle the demand. However, careful scheduling of these facilities will becritical to prevent bottlenecks that may cause schedule delays. Moreimportantly, there are far fewer facilities options for larger vessels.Most of these facilities that can handle large ships are not currentlybeing used for shipbuilding. Some are inactive, while others are usedfor either naval or commercial repair. This fact will be a particularlyimportant consideration for programmes such as CVF, JCTS, andMARS, which will require that some facilities upgrades and improve-ments be made as well as the potential reopening of some inactivefacilities. Further, it is conceivable that some of the commercial facili-ties may not be available for use.

113

CHAPTER FIVE

The UK Shipbuilding Supplier Industrial Base

Shipbuilders do not perform all the work necessary in ship construc-tion themselves. Purchased materials and equipment make up a largeportion of a ship, typically more than 50 percent. The shipyards buyequipment from specialised suppliers that may have an expertise inparticular areas—for example, communications systems or saltwaterdesalination systems—which can do the work more efficiently. Thisratio is typical of major military weapon systems such as airplanes.

Therefore, as part of this study, we conducted research on thestrength of the UK shipbuilding supplier base. We wanted to know ifthere were any major concerns affecting the various sectors support-ing the shipbuilders. A reasonable question is whether the shipyardsuppliers will be able to support MOD’s future needs. We assessedthe shipyards’ perspective on the strength of their suppliers and alsoobtained perspective from the suppliers themselves. Our bottom-linequestion was whether and to what extent the MOD needs to be con-cerned about the supplier industrial base.

Research Approach

To get at the question of the strength of the supplier base, we took atwo-tiered approach, sending out a main survey to the shipyards anda secondary survey to the suppliers. In the main survey that we sent tothe shipyards, we asked for information on their major first-tier sup-pliers and their critical second-tier suppliers. In this survey, we asked

114 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

for the names of the suppliers, information on what they provided,and the amount of money spent on them. We also asked the ship-yards three subjective questions formulated to get at three differentaspects of supplier strength. We asked them (1) whether the suppliershad the capacity to take on more work (rated low, medium, or high),(2) for an assessment of their long-term stability and viability (ratedlow, medium, or high), and (3) whether there were alternative suppli-ers for what they provided or whether the shipyard was dependent onthat particular company (reverse coded so that riskier situations wererated ‘high’).

The survey technique generated a list of 349 suppliers. Therewere many duplicate company listings, which we consolidated if thesites had the same address. In a number of cases, the shipyards pur-chased goods and services from other shipyards that were also in theoriginal sample, so we did not survey these firms a second time. Andthere were a few cases in which no contact information was provided.

This consolidation resulted in a second sample of 230 suppli-ers,1 to which we sent a short survey assessing other measures of sup-plier strength (by mail in December 2003). In the packet, weincluded an introductory description of the study as well as a letterfrom the DPA asking suppliers to support the research effort. In casesin which we did not get a response within a few weeks, we followedup in January and February 2004 with email and telephone calls if wehad the appropriate contact information. As of April 1, 2004, wereceived answers from 48 suppliers, a response rate of 21 percent,which was in line with the 20 percent reported by the DTI in its2001 competitive analysis of the UK Marine Equipment Sector.2

In the second survey, we asked the suppliers for information onwhether they were independent or subsidiaries of other firms, their____________1 Realistically, the actual sample size is some number below 230. To increase the potentialresponse rate, we sent surveys to suppliers that were branches of the same company but haddifferent addresses. Some of these indicated that their headquarters would provide consoli-dated responses for all their locations.2 Department of Trade and Industry Engineering Industries Directorate (2001).

The UK Shipbuilding Supplier Industrial Base 115

dependence on MOD naval work and about the rest of their cus-tomer base, and some labour force and recruiting issues.

It should be noted that this sampling frame excludes mostgovernment-furnished equipment. The MOD should have more in-sight into these suppliers because it does business directly with them.

Characterising the Supplier Base—The Shipyard Perspective

We first looked at characteristics of the suppliers that the shipbuildersidentified as key first- and second-tier participants in the supplychain.

What They Supply

We asked the shipyards to identify their major first-tier suppliers byindustrial sector and their most critical second-tier suppliers. Thecategories we asked for are as follows:

• Hull structure—assembled main hull body with all structuresubdivision

• Propulsion plant—major components installed for propulsionand related systems

• Electric plant—power-generating and distribution systems forship service

• Command and surveillance—equipment and systems installedto receive, transmit, and distribute information on- and off-ship

• Auxiliary systems—systems required for ship control, safety,provisioning, and habitability

• Outfit and furnishings—outfit equipment and furnishingsrequired for habitability and operability not included in otherelements

• Armament—complex of armament and related ammunition andcargo munitions handling, stowage, and support facilities

116 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

• Integration and engineering—engineering effort and relatedmaterial associated with the design, development, productionplanning and control, and rework of the ship

• Ship assembly and support services—efforts and material associ-ated with the construction that cannot be identified with otherelements

• Critical second tier—suppliers that are not first-tier but supply acritical component that is not easily replaced or substituted.

After some research on the businesses of the second-tier compa-nies, we were able to assign them to industrial sectors, which we dis-play in Figure 5.1.

Figure 5.1Industrial Sectors of the Identified Suppliers

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Armament(4%)

Auxiliarysystems(29%)

Command and surveillance

(16%)Electric plant

(10%)

Hull structure(11%)

Integration/engineering

(2%)

Other(2%)

Outfit andfurnishings

(13%)

Propulsionplant(10%)

Ship assembly and support

services(3%)

The UK Shipbuilding Supplier Industrial Base 117

The figure demonstrates that the identified suppliers support theshipyards in a wide variety of areas, as is to be expected.

The financial data from the shipyards on how much they pay tosuppliers was not consistent enough to present here, but it rangedfrom a few tens of thousands of pounds to many millions.

Where They Are

The shipyards in this study predominantly used suppliers that arebased in the United Kingdom. As Figure 5.2 shows, 81 percent ofsuppliers identified as key first- or second-tier participants werelocated in England, Wales, Scotland, and Northern Ireland. Follow-ing the United Kingdom was the Netherlands, with just fewer than 6percent of the suppliers. Germany provided slightly fewer than 5 per-cent, the United States 3 percent, France about 2 percent, and Italyslightly more than 1 percent.

Figure 5.2Locations of Suppliers, by Country

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118 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Three Measures of Supplier Strength

To determine the shipyards’ assessments of their suppliers’ ability tosupport MOD’s future shipbuilding needs, we asked them to reporton three different measures of their key suppliers’ strength. The firstquestion was the ability of the suppliers to take on more work, thegoal of which was to measure whether there was some amount ofexcess capacity or ability to be flexible that the shipyards could counton, if necessary. The second question was whether the suppliers werelikely to be around in the long term, since we wanted to get a sense ofwhether the suppliers would be available for future MOD pro-grammes. The third question referred to concerns about dependenceon particular suppliers and the existence of competition for whatevergoods or services they provided. We will examine each measure inturn, breaking out the information by industrial sector in which thesuppliers operate.

The first measure is the ability of the supplier to take on morework—that is, its ability to increase production. We display theresults of our inquiry in Figure 5.3. Understanding capacity is usefulif the customer either increases the total volume of work or re-programs the work so that the peaks increase in magnitude. In theresearch at hand, extra capacity should give the MOD some comfortthat the supplier base would be able to meet its needs if it changes theacquisition schedules for new ship programmes.

Looking at all the suppliers for which the shipyards providedinformation, we can see in Figure 5.3 that for only a very small per-centage of suppliers does capacity appear to be an issue. The oneindustry for which it appears to be the biggest problem (integrationand engineering) has only three suppliers identified by the shipyards,of which one is at risk. (There are more suppliers in the sector as awhole than these three, but only these three have been identified inthe sampling methodology used in this study.)

The shipyards expressed capacity concerns nine times in total.However, in three cases, multiple shipyards identified the same sup-plier. For these, only one shipyard indicated a ‘high’ concern aboutcapacity, while the others rated the same supplier’s capacity concern

The UK Shipbuilding Supplier Industrial Base 119

Figure 5.3Suppliers’ Ability to Take on More Work

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as ‘medium’ or ‘low’. One implication is that this is a subjectivemeasure, and the shipyards may not individually have complete in-sight into their suppliers’ operations and ability to take on new work.

The second measure we assessed is the shipyards’ concern aboutthe long-term stability and viability of their suppliers. Suppliers ratedas ‘low’ may not be in existence to support future years work. Alter-natively, if the rating was ‘high’, the shipyards have confidence thatthey (and hence the MOD) will be able to rely on those suppliers inthe future.

As Figure 5.4 shows, it appears that the shipyards are relativelyconfident that most of their suppliers will be viable in the long term.

120 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Figure 5.4Long-Term Stability and Viability of Suppliers

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Again, for the one sector that appears most in jeopardy (integra-tion/engineering), the level of risk is the result of one company beingof concern out of three total identified for this study by the shipyards.

The shipyards expressed survival concerns about 10 suppliers. Intwo cases, multiple shipyards identified the same supplier, and foreach of these only one of the shipyards suggested that the supplierconfidence was at ‘low’ in terms of its long-term viability.

The third measure refers to how much competition or howmany alternatives there are for the goods and services that a particularsupplier provides—a measure of dependence on a supplier. However,this indication of risk does not have a simple interpretation. Theshipyard may be in a relatively stronger negotiating position com-pared with its supplier if there are multiple providers for the same

The UK Shipbuilding Supplier Industrial Base 121

good or service. Competition will presumably work to keep the sup-plier costs low and the quality and service high.

Without competition, the yard may have to pay relatively more.But this possibility would not necessarily make any particular MODshipbuilding programme more risky. The supplier may be willing andable to take on more work, and it may have strong prospects for long-term survival. Having only one competitor in any particular sectormay also be the result of defence consolidation, a natural consequenceof the broader downsizing of weapon acquisition programmes.

As Figure 5.5 suggests, there was a bit more concern in the areaof competition than for the other two measures of risk. Shipyardsindicated that 25 suppliers did not have competition for the goodsand services they offered. However, multiple shipyards identified 10

Figure 5.5Dependence on Supplier/Competition

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122 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

companies as being key suppliers, and in every case there was dis-agreement about the lack of alternatives. It is possible that the ship-yards are buying different goods and services from these suppliers andare providing accurate assessments of the availability of alternatives,but it is also likely that some shipyards have a broader view of thesupplier base than others.

Summary

The shipyards buy a wide variety of products from many suppliers,most of which are located in the United Kingdom. There is someconcern about the ability of individual suppliers to increase their pro-duction, as well as their prospects of long-term survival. These issuescould usefully be the focus of further investigation into the supplierbase. There are also a number of suppliers for which there may be nocompetition for the products and services they provide. The defencemarket in the United Kingdom may not sustain multiple suppliers inthese sectors. However, the United Kingdom could assess globalalternatives, of which the shipyards may not currently be aware of, tomake sure that in worse-case scenarios these particular items could bepurchased from nondomestic suppliers.

Supplier Survey Results

Even though we attempted to obtain inputs from all the suppliers forwhich we had adequate contact information, not every supplierreturned the survey. During the follow-up phase, few refused directly,but there were cases in which companies stated that they had ‘no-survey’ policies. Some promised to return the survey but never deliv-ered, while still others were unreachable and did not return messages.Overall, the response rate was about 21 percent, and therefore, theresults of the supplier survey should be viewed as indicative ratherthan statistically significant. We do not know whether the suppliersthat responded are representative of the shipyard suppliers as a whole,but we have no reason to believe that there is any systematic bias.

The UK Shipbuilding Supplier Industrial Base 123

(Although it may be that suppliers that are most interested in sup-porting MOD naval work would be more likely to reply, we cannotassert this assumption with any certainty.)

We used the supplier survey to get at measures of supply riskthat could not be captured by asking the prime contractors them-selves. We asked about the suppliers’ dependence on MOD and navalwork, on the number of customers and competitors, on theirworkforce and their recruiting challenges, and on the challenges theyface in supporting MOD shipyard programmes.

Demographic Information on Sample Suppliers

A common measure of company size is number of employees. In thesample of companies that responded to our survey, two-thirds wererelatively small, with 250 employees or fewer (see Figure 5.6). Wereport this detail to provide descriptive information on our sample,but we cannot say whether the responses are representative of theshipbuilding supplier base as a whole. (The sampling frame in which

Figure 5.6Size of Suppliers, by Number of Employees in 2003

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124 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

we specifically asked for information on key second-tier suppliers mayhave led to an overrepresentation of smaller firms.)

Twenty-five of the 48 suppliers that responded to the survey aresubsidiaries of larger organisations, and the rest are independent.Thirty-one of the suppliers are privately held, and 17 are publiclyowned firms. In terms of country of the suppliers, the distributionsroughly followed that of the broader sample shown in Figure 5.2. Ofthe 48 respondents, 39 were from the United Kingdom, two fromGermany, two from Italy, four from the Netherlands, and one fromthe United States.

Suppliers’ Business Base

In the survey of suppliers, we asked the suppliers to divide their salesinto six categories, providing the percentage of their total business ineach. Broadly, the division was between shipbuilding and other off-shore work, and all non-shipbuilding-related work, further dividedinto MOD, other military, and nonmilitary work. The results fromthis question can be presented in a number of ways, giving insightinto what portion of suppliers’ business bases is a result of sales forMOD shipbuilding, for all ship-related work, or for all military work,for example. Figure 5.7 presents the average of all supplier results.

Typically, about half the work of the average supplier is derivedfrom the totality of its shipbuilding, naval, and offshore work, whileabout a third comes from work that has nothing to do with ship-building and does not have a military customer. We also found thatthe average supplier receives less than a quarter (about 22 percent) ofits total revenues from MOD shipbuilding programmes.

This last statistic suggests that most of these suppliers are notoverly reliant on MOD naval programmes to sustain their businessbase and may be able to withstand the unexpected programmechanges and production gaps that may be typical of military pro-grammes of all sorts in every country. Examining this one category inmore detail provides further insight into suppliers’ dependence onMOD shipyard programmes.

The UK Shipbuilding Supplier Industrial Base 125

Figure 5.7Average Supplier Dependence on Different Sectors

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As Figure 5.8 shows, few suppliers get more than 50 percent ofrevenues from MOD shipbuilding and repair, and as many as two-thirds derive a quarter or less of their work from this sector. Thus,most suppliers in our sample are not highly dependent on revenuesfrom MOD shipbuilding and repair programmes. One possibleimplication is that fluctuations in these programmes would have arelatively limited impact on the typical supplier (although clearlysome would bear a greater burden).

Even though few companies in the supplier sample are highlydependent on MOD naval work, we see that many are heavilyinvolved in the maritime sector, as depicted in Figure 5.9.

A significant number of the suppliers—in excess of half—derivemore than 50 percent of their revenues from shipbuilding, repair, andoffshore work as a whole, with one-third of the companies doingmore than 75 percent of their work in this sector. This informationsuggests that the suppliers are likely to have focused on the specialistskills required for shipbuilding, although it should be noted that one-third of the companies do less than 25 percent of their work in thesector.

126 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Figure 5.8Percentage of Suppliers’ Revenue Derived from MOD Ship Programmes

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The UK Shipbuilding Supplier Industrial Base 127

Companies that derive a larger percentage of their work fromthe military may be at risk if budget concerns cause a general drawdown in military spending or if the defence climate were to change inother ways.

As Figure 5.10 reveals, the companies we surveyed are fairlyevenly divided in terms of their dependence on military work.

Number of Customers

Another measure of supplier strength is the number of majorcustomers that they have. If just a single customer, they are at greaterrisk for failure should something happen to the prime contractor theysupport—or in case of a perturbation, to the programme they sup-port. Figure 5.11 lays out the response to the question asking aboutnumbers of customers.

Very few suppliers depend on single customers for either theirship or non-ship-related work. A robust customer base signifies thatthe suppliers should be better positioned to handle perturbations

Figure 5.10Percentage of Suppliers’ Revenue Derived from Military Work

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128 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

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from any single customer. However, all their customers face down-turns, which could be problematic.

It should be noted that although the suppliers in this surveylisted their major customers, they might not have provided a com-plete list.

Number of Competitors

One measure of risk that the shipyard survey explored was whetherthere were competitive alternatives for an existing supplier. Weattempted to acquire this information on the supplier side by askingwho their most important competitors are. We present these resultsin Figure 5.12.

There is a significant amount of missing data here. Many sup-pliers provided no information on their competition. Moreover, wecannot be sure that the suppliers providing information offered acomplete list. Nonetheless, most companies that provided informa-

The UK Shipbuilding Supplier Industrial Base 129

Figure 5.12Numbers of Marine and Non-Marine Competitors

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tion indicated that they did face competition, which may mean lessrisk for the shipyards, and hence MOD, in these industries (althoughthe competitors may not provide reasonable substitutes for some ofwhat the suppliers in our survey provide).

Recruiting Challenges

We asked suppliers to rate how easy it was for them to recruit in fourdifferent labour categories. Although there was a fair amount ofmissing data, the results presented in Figure 5.13 are still suggestive.

Engineers Presented the Most Challenges for Recruiting

To get at this question another way, we asked the suppliers if theyhad any particular labour force recruiting challenges. Many suppliers(21) did not answer this question, so they may not have had anyproblems. Nine others specifically said ‘none’. Those that did facechallenges identified engineers as hardest to find, with seven men-

130 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Figure 5.13Ease of Recruiting Four Classes of Employees

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tions. Two companies had problems recruiting employees with theability to create three-dimensional CAD drawings, and two had prob-lems finding skilled machinists. The rest of the skills that were men-tioned as problematic received only one mention each, includingproject managers, sales people with appropriate background, electri-cians, metallurgists, ultrasonic tube testing technicians, computernumerical control operators, fabricator welders, and job-specific pro-duction staff. These results indicate that the suppliers face similarchallenges as the shipyards in terms of specific recruiting needs (seeChapter Three).

Challenges Working for the MOD

We also asked the suppliers directly about the challenges that wouldlimit their ability to meet the MOD’s ship acquisition plans. Four-teen expressed no concern. For the others, the most common concernrelated to the fact that doing business with the MOD involved a lotof unknown factors regarding the MOD’s plans. Sixteen suppliers

The UK Shipbuilding Supplier Industrial Base 131

indicated some aspect of MOD’s planning and budgeting process asthe biggest challenge. However, it is clear that there is interest inMOD work, since seven suppliers focused on winning the business astheir main issue. The other main concern was getting the right kindof employees needed to do the work.

The following comments are typical concerns taken directlyfrom the surveys:

• ‘Contracts placed at same time with short delivery schedule’• ‘Ease the feast to famine periods of high and low demand’• ‘Lack of consistency in planning’• ‘Lack of continuity in MOD ordering programme’• ‘Lack of continuity and decisionmaking by MoD’• ‘Not being given specific early information on requirements’• ‘Programme delays’• ‘Uncertainty over procurement programmes’• ‘Insufficient lead time’• ‘There is little point in trying to plan because the projects are so

undefined and there is very little if any guarantee’.

Concern or complaints about serving customers in any industrymay not be uncommon. However, as the MOD examines what it cando to strengthen the shipbuilding industrial base, it should be awarethat if suppliers could plan operations based on more consistent pro-grammes, they may become stronger and more willing to operate inthe naval shipyard sector. One of the risks that should be assessedwhen MOD alters its shipbuilding plans (e.g., by extending pro-grammes) is the effect of changes on the supplier base, especiallythose at higher risk of leaving particular lines of business.3

____________3 This risk has not gone unrecognised. ‘He [Murray Easton, BAE Systems Submarine’s man-aging director] is also conscious that delays in the Astute programme have put parts of thesubmarine industrial base under strain’ (‘Astute Sets Out on the Long Road to Recovery’,2003, p. 30).

132 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Summary

Although our response rate of 21 percent does not allow us to assertthat these results are statistically significant, we believe that they aresuggestive of the larger shipyard supplier industrial base. The compa-nies that responded to the supplier survey were a variety of sizes andwere divided between independent, stand-alone firms and subsidiariesof other companies, as well as between private and public firms. Theydid not appear to be overly dependent on MOD shipbuilding pro-grammes for their business, although many did a majority of theirbusiness in various aspects of shipbuilding and offshore work. It wasalso typical for firms to have both multiple customers, putting themless at risk if something happens to one of their customers, and mul-tiple competitors, meaning that their customers would have alterna-tives if something were to happen to their suppliers. Finding appro-priately trained engineers is their biggest recruiting challenge, and theperturbations and uncertainties in MOD shipbuilding programmes istheir biggest difficulty in supporting this work.

Results from Linking Shipyard and Supplier Surveys

We attempted to match information from the shipyard and the sup-plier surveys to see if there were any patterns that might indicate areasof supplier risk about which the MOD should be concerned.

Of the 48 suppliers that responded to the survey, six wereidentified as being high risk in one of the three categories on theshipyard survey. We explored the extent to which their business basewas devoted to MOD shipyard work and found that the numbersvaried from 15 to 30 percent. Three of these suppliers are subsidiariesof other firms, so they might be supported in economic downturns.Alternatively, these subsidiaries could be sold off or shut down if theydid not meet certain profit targets. Finally, only one company thatwas rated as having few alternatives or limited competition by itsshipyard customers provided information on its own competition,which it rated as being ‘numerous’.

The UK Shipbuilding Supplier Industrial Base 133

It is difficult to reach any conclusions about the health orstrength of the suppliers based on this matching of the two surveys.Nevertheless, it does suggest the possibility of strengths in the sup-plier base resulting from a broader customer base than their shipyardcustomers may be aware of. (However, it is also clear from reports inthe press and other sources that some suppliers identified as problem-atic by the shipyards are very much at risk.)

Developing an Effective Supplier Strategy4

The question of how to best manage suppliers is by no means a newone. Over the years, a considerable amount of literature has emergeddescribing the best practices that commercial firms use to managetheir supplier base.5 Although this research is too broad and diverse toreview here, there are some consistent themes we can touch on.

Researchers in the field recommend taking a proactive approachto managing the supply base. Suppliers play an important role in theproduction of any final product and should be managed with theirstrategic role in mind. Steps for firms to follow are (1) conduct afirmwide spend analysis on all money spent on suppliers; (2) ration-alise the supply base, consolidating contracts where possible (andwhere this fits the legal requirements for competition); (3) establishlong-term partnerships with the best, most strategically importantsuppliers; (4) help key suppliers improve quality, cost, and service;and (5) integrate key suppliers into the organisation.6

____________4 This section is meant to be an introduction to some best-practice supplier managementinformation to the general reader, not a critique of current MOD or shipyard practices inthis area, which were not a subject of investigation in this study.5 For example, Monczka, Trent, and Handfield (2002), Cavinato and Kauffman (1999),Gattorna (1998), and Laseter (1998). There are too many books and articles on this subjectto offer a complete list here.6 Moore et al. (2002). This report also documents specific cost saving and performanceimprovements that have resulted from strategic supply chain management.

134 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Part of the strategy is to ‘segment’ the supply base. A number ofresearchers7 recommend dividing suppliers into categories based onmultiple dimensions, for example, viewing the total amount spent atsuppliers in light of strategic importance or risk. If the supplier base iscategorised based on scoring ‘low’ or ‘high’ in these two dimensions,an appropriate strategy can be identified for each of the four catego-ries that result. Low risk/importance and low spend items can be con-solidated into larger contracts and issued on the basis of cost and reli-ability of the supplier. It is more critical for companies to carefullymanage suppliers that are high risk/importance and high spend, per-haps partnering with them to work on reducing costs and increasingquality. In such instances, long-term contracts might give the suppli-ers reason to invest in the relationship with the customer.

Furthermore, best-practice customers not only manage theirown suppliers but also try to have their first-tier suppliers manage thesecond-tier suppliers in a similar fashion, with the goal of taking costsout of and improving quality in the entire supply chain. The MODcould certainly encourage its own suppliers—the shipyards—to investin best-practice supplier management techniques and could also useperformance in this area as one of its assessment criteria.8

Conclusion

The methodology we followed did not reveal a major problem in theability of the supplier base to support MOD shipbuilding pro-grammes. However, there are a few suppliers and sectors that maypresent some risk. The MOD’s SRG could follow up on these spe-cific companies. Our methodology also did not include government-furnished equipment that is provided by the MOD directly to theshipyards.____________7 Two of the first were Bensaou (1999) and Tang (1999).8 This may already be in place; again, we did not research MOD practices in this study.

The UK Shipbuilding Supplier Industrial Base 135

However, the absence of a systematic problem does not meanthat the MOD would not benefit from proactive supplier manage-ment strategies, both of its own prime contractors and from theprime contractors’ management of their own supply chains. There isconsiderable evidence of reductions in cost and improvements inservice and quality resulting from a more considered and strategicapproach to supplier management.

137

CHAPTER SIX

Nontraditional Sources for Naval Shipbuilding:Commercial Shipbuilding and Offshore Industries

The previous chapters have focused primarily, though not exclusively,on the ability of the naval shipbuilders and ship repairers to meet theMOD’s plans over the next 15 years. Given the large peak demandsfor both labour and facilities, the MOD will need to explore manypossible options to either mitigate or overcome these peaks. Optionswe have examined so far are how level-loading, outsourcing, work-sharing, and workforce recruiting may or may not help to fully miti-gate these peaks. Another option for the MOD is to engage a broaderset of firms for the design and production process.

The United Kingdom, at one point in time, had fairly extensiveindustries in both commercial shipbuilding and offshore fabrication.As a result of either a decline in business or competition from foreignsources, these industries are either vastly reduced from their peak orare underutilised at present. Given that these industries share a com-mon market segment—maritime industries—the natural questionsthat arise are whether and how these industries can contribute to theMOD shipbuilding plan. In this chapter, we will explore these issues.Given the limited information from some of these firms,1 the discus-sion that follows will be largely qualitative.____________1 Some firms did participate in the study, whereas others either declined to participate, didnot want to provide sensitive information, or did not respond.

138 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Declining Markets for Offshore and Commercial Work

At one time, the United Kingdom was the largest commercial ship-building nation in the world.2 This position declined over the 20thcentury, with the country providing only a small portion of the totalcommercial output.3 The reasons for this decline are too involved toaddress in this document, and there are excellent treatments of thissubject elsewhere.4 To illustrate the recent decline in UK commercialshipbuilding, let us examine some output data presented in the recentRAND study.5 Figure 6.1, taken from that study, shows the grossregistered tonnage delivered each year since 1980.6 We haveabstracted the data to show only deliveries to commercial customers.As can be seen, the overall output today is a fraction of its peak in theearly 1980s. As a result, there are very few commercial shipbuildersactive in the United Kingdom. In fact, many surviving commercialshipyards focus on repair work.

Similarly, the workload for the offshore industry also hasdeclined. Figure 6.2 displays the decline in new production workloadfor the North Sea sector based on data from KBR. As shown, thecurrent new production work is a quarter to a third of what is was inthe mid-1990s.

We provide these two figures not to define the capacities of theindustries but rather to show that the UK business for both sectorshas declined significantly in recent years. Thus, one could infer thatthere might be available capability that could be applied to navalshipbuilding. In fact, some firms (such as KBR and AMEC) areactively pursuing such opportunities. The question is, what is theextent of that capacity?

____________2 Johnman and Murphy (2002); Burton (1994).3 Birkler et al. (forthcoming).4 Johnman and Murphy (2002); Jamieson (2003); Burton (1994); Winklareth (2000);Owen (1999); Walker (2001).5 Birkler et al. (forthcoming).6 The data do not include vessels of less than 100 gross tons.

Nontraditional Sources for Naval Shipbuilding 139

Figure 6.1Decline of Commercial Shipbuilding in the United Kingdom Over the PastTwo Decades

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140 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Potential Resources Available

To gauge the capacity of the aforementioned industries to take onnaval shipbuilding work in the United Kingdom, we contacted anumber of firms that fit into the broader maritime sector that either(a) supplied data to this study, or (b) interacted with RAND on pre-vious studies:

• A&P Group• AMEC• Appledore (now part of DML)• Atkins Global• BMT• Ferguson Shipbuilders• KBR Caledonia• Harland and Wolff.

We cannot make a clear distinction between exclusively com-mercial and exclusively offshore resources. Many of these firms (e.g.,Atkins Global, AMEC, KBR, and BMT) provide design, engineering,management, and/or production services to a broad range of clientsand industries (commercial, military, and offshore). Similarly, themedium-sized shipbuilders (Harland and Wolff, Appledore, andFerguson Shipbuilders) have engaged in a combination of commercialand naval production. By including these firms in this chapter, we arenot implying that they focus exclusively on any particular industrialsector; rather, the combination was done to simplify presentation andto show what resources might be available from firms that work inother areas of the maritime sector.7

We have included Ferguson and BMT data in this sample, eventhough they are included as part of the labour supply analysis ofChapter Three. We include them again to show the magnitude of the____________7 Likewise, Swan Hunter has engaged in projects for the offshore industry. DML and VThave each built private yachts. We do not include these firms here because they have beenincluded in previous chapters.

Nontraditional Sources for Naval Shipbuilding 141

resource available from additional suppliers and to protect otherfirms’ data.

Labour

As mentioned earlier, we do not have sufficient data from these firmsto conduct a detailed demand and supply analysis similar to the onewe did for the naval shipbuilders and repairers in Chapters Two andThree. However, it is useful to describe the magnitude of the poten-tial labour resources that might be available at these firms. We willsummarise the labour currently engaged, at one time engaged, orthought to be readily available.

There are two qualifications to note about the data from thesefirms:

1. The labour resource data from KBR Caledonia, Atkins Global,and AMEC includes resources that would be available beyondthose available in the United Kingdom. Furthermore, some ofthese firms have noted that significantly greater resources areavailable worldwide through their parent organisations. Forexample, a firm might have included an overseas engineeringoffice in its workforce data. Obviously, there would be securityand political concerns that must be considered before leveragingsuch resources.

2. The data for Harland and Wolff, A&P Group, and Appledorewere obtained circa 2001 in a previous RAND study for theMOD. The data are representative only, given that the businesssituation of the firms might be quite different today.

Table 6.1 summarises the labour data by the five categoriesintroduced in Chapter Two. The table contains an additional ‘un-specified’ category into which we placed employees we could notallocate into one of the five categories. The numbers have beenrounded. In the medium-sized shipbuilders, we include Appledore,Ferguson, and Harland and Wolff. The other firms are collected inthe ‘other firms’ category.

142 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Table 6.1Labour Resources of Medium-Sized Shipbuilders and Other Firms(number of employees)

SkillMedium-Sized Shipbuilders

(number of employees)Other Firms

(number of employees)

Management 130 2,300Technical 330 17,000Structure 550 700Outfitting 140 820Support 130 690Unspecified — 1,000

Strikingly obvious from the table is that there is a large numberof design and technical resources employed by these firms. Althoughnot all this technical resource has naval expertise, it is a resource thatcould be used to supplement design teams and management on navalproduction programmes. Not to be ignored are the medium-sizedyards, which too can bring resources for module block constructionor even smaller vessel fabrication. For example, Appledore con-structed the two Echo-class survey vessels under subcontract to VT,and Ferguson Shipbuilders has constructed fishery protection vesselsfor the government. We must caution the reader, however, not toexpect that all these resources would be at the MOD’s disposal or thatthey even exist currently. The values represent potential workforce. Insome cases, the naval shipyards are considering working with thesefirms as a way to outsource peak workload.

An important characteristic of ‘other firm’ workforce worth con-sidering is that it tends to be quite mobile. In other words, it is notuncommon for the workers to move to different sites, depending onwhere the work is located. In essence, they move to the work; thework doesn’t come to them. Their movement may be to other coun-tries, as well. It is not uncommon to have a significant portion of theworkforce be expatriates. To illustrate this point, a study of offshoreworkforce skills in Nova Scotia examined workers’ willingness to

Nontraditional Sources for Naval Shipbuilding 143

move to other locations for jobs.8 The authors found that 40 percentof the workers surveyed were willing to travel outside Canada forwork. Only 16 percent of those surveyed said they were willing totravel no more than 100 kilometres. Such mobility greatly aids theoffshore industry to level demand and maintain an appropriatelysized and skilled labour force.

Facilities

The commercial and maritime sectors also have facilities that couldbe used for naval production (if not engaged for other work). In fact,some of the traditional naval shipyards are considering or are alreadyusing some of these facilities. For example, Swan Hunter is in theprocess of reactivating a former offshore fabrication facility for use innaval shipbuilding programmes. KBR Caledonia has a fabricationand assembly facility in Nigg with one of the larger dry docks in theUnited Kingdom. Likewise, Harland and Wolff has a large dry dockwith associated facilities, which have been used for both naval andcommercial shipbuilding in the past. BAE has considered using theInchgreen dock in Greenock for future production. Ferguson andAppledore have facilities capable of producing smaller naval vessels(approximately up to frigate-sized ship). We have summarised thefacilities capacity for these firms in Chapter Four.

Strengths and Weaknesses of Using Offshore Firms inNaval Production9

The offshore industry has traditionally produced commodities moreakin to structures and petroleum process facilities.10 So a naturalquestion arises: How might the offshore industry contribute to naval____________8 Chaundy (2002).9 These statements are not specific to any one firm but are generalised for the industry. Anyindividual firm might have different characteristics.10 Recent production of floating production storage and offloading vessels has blurred theline between a vessel and production facility.

144 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

shipbuilding? The industry could bring several strengths to ship-building. It has experience working on collaborative programmes andalliance-type structures and has a network of suppliers and sub-contractors that may be untapped by the naval shipbuilders. Thissubcontractor resource could be used to increase the outsourcingdone by the shipyards. The offshore industry is experienced with dis-tributed design (engineering done in more than one location) and hasbroad programme management and logistic skills on collaborativeprogrammes. Further, modular construction is the norm for theindustry.

That said, the offshore industry does have some weakness withrespect to naval shipbuilding. It lacks specific domain knowledge ofmilitary ships and therefore will be unfamiliar with the systems com-plexity (particularly weapon systems), the design and build standards,and the testing and commissioning requirements. Further, offshorefirms will generally (although not all) have limited experience withMOD on new systems acquisition. Therefore, procedures, policies,and general programmes issues will need to be assimilated. Lastly, notall offshore firms have extensive steel plate/steel structure panel-linefabrication facilities. Thus, the offshore industry, as a whole, will notserve as an extensive resource for structural work.

The strengths of the offshore industry play well to the need forthe naval shipbuilding industry to work in a more collaborative fash-ion. As we have stated earlier, better work-sharing between the ship-yards will be necessary to meet the peak labour demand. The offshoreindustry might be the catalyst to make this work-sharing happen andfunction successfully. It is not likely, however, that the industry willfeature strongly in direct fabrication; it might feature more promi-nently in assembly and integration.

As with any owner-contractor relationship, an owner that is ableto well define a programme up-front and minimise late changesachieves better performance. A study of exploration and production(mostly offshore) programme performance over the past decadefound that, on average, offshore programmes experienced approxi-

Nontraditional Sources for Naval Shipbuilding 145

mately 10 percent cost and schedule growth over their authorisationplans.11 About one-eighth of the programmes were termed ‘disasters’and had an average of about 30 percent cost growth and 35 percentschedule slip. For projects that were well defined and that controlledchanges, cost growth was approximately negative 5 percent andschedule slippage was less than 5 percent. The MOD’s expectationsof performance will have to be tempered by the fact that it has a ten-dency to have higher levels of change on its programmes than does acommercial customer.12 The MOD should not expect commerciallevels of performance on programmes in which there is a high level ofchange. Similarly, commercial firms will need to expect greater levelsof change and adjust their control processes accordingly.

Finally, it is important to note the differences between theproducts that each industry produces. As described in Chapter One,warships are complex systems integrating many functions (e.g., com-munications, food service, weapon systems). The offshore industryproduces a variety of products, from drill, support, and pipe layingships to offshore production platforms. Although these ships havesimilarities to other commercial vessels, they are quite different fromcombatants in terms of system complexity and the density of systems.Offshore platforms are even more different. These products can beviewed more as structures with processing equipment and supportfacilities on topsides. The topside plant is typically produced as skid-ded units or modules (often produced at several locations) with muchof the equipment and outfit (piping and electrical) already installed.Therefore, the final outfitting activities on the platform are mini-mised. This contrasts with combatants, where weapon systems andsensors are installed at the end of the production process to takeadvantage of the most advanced equipment. So, while some of theoffshore products are similar to commercial maritime ones, they arequite different from a combatant.____________11 Merrow (2003).12 Arena et al. (forthcoming).

146 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Summary

The UK commercial shipbuilding and offshore industry haveresources that may help to produce ships for the MOD. Theseresources are currently underemployed and could be available to theMOD for its shipbuilding programme. The medium-sized shipbuild-ers have played and could play a role in the production of ships—from a builder of blocks and modules to a producer of smaller vessels.The offshore industry also has potential facilities and labour resourcesto contribute to the programme. However, its role, if any, will needto be carefully matched to its capabilities and skills. For programmesthat are similar to commercial products, the industry could play abroader role in the management, design, and production. However,for combatant ships, their role will be more limited.

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CHAPTER SEVEN

Issues for the Ministry of Defence to Consider

Summary

The MOD will be embarking on an ambitious shipbuilding plan torenew the naval fleet over the next several years. As we have seen inthe previous chapters, the MOD will face a number of capacity issuesin implementing this plan. The crux of the capacity issue is the num-ber of simultaneous shipbuilding programmes that will occur between2007 and 2012. This overlap of programmes will cause a large spikein the demand for resources. The resources that we explored arelabour, facilities, and suppliers.

Labour Demand

The peak in the production labour demand at the shipyards and firmsis a result of the overlap of four large programmes: Type 45, CVF,MARS, and Astute. The peak labour increase for the direct workforceis about 30 percent greater than the current employment levels ofthose firms that participated in the study. Table 7.1 shows the relativegrowth in each of the skill areas examined.

The most significant increase (in absolute sense) is in the struc-tural and outfitting trades. Once past the peak, overall workloaddemand steadily declines for the foreseeable future. Although notshown in this report because of the business sensitivity, a few navalshipyards face workload gaps or erratic demands despite the overallhigh aggregate level of demand.

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Table 7.1Percentage Growth at Peak Demand Relative to CurrentEmployment Levels (direct workforce only)

Skill Percentage Growth

Management 10Outfitting 42Structural 48Support 28Technical 21Total (weighted average) 32

The technical workforce demand presents a more difficult chal-lenge. We showed that there is a sharp drop-off in demand for tech-nical workforce in the near term, which results mainly from the run-down of the design work for the Type 45 and Astute. Later, the trendreverses dramatically as the CVF, MARS, and JCTS place near simul-taneous demand for technical workers. In the span of a few years, thedemand for technical workers nearly doubles from its low.

Variation in the technical workforce is much more problematicfor the firms. First, these technical workers take years to develop andtrain. So, new hires are limited to what higher education produces.Furthermore, technical workers have general skills that allow them tomove to other industries. Therefore, after a period of reduceddemand, technical workers who are made redundant will likely leavethe industry.

The statements summarised above regarding the demand forproduction and technical workforce reflect a scenario that is based onthe MOD’s current plans. We did, however, explore several alternateacquisition scenarios. In almost all cases, regardless of programmevariation, the potential MOD plans result in a significant increase inthe amount of production labour demand. This increase in labourdemand will force the shipbuilding industrial base to rapidly increaseits workforce, especially in specific outfitting, structural, and technicalskills. After the period of peak labour demand, the amount of directworkers needed to build the future MOD ships will decrease, and will

Issues for the Ministry of Defence to Consider 149

continue to decrease into the foreseeable future. The demands for thetechnical workforce under the alternative scenarios are much the sameas the current plan. After an initial decline, the demand for technicalworkers increases drastically. One notable exception is the scenario inwhich we included a Future Submarine (with a new design). For thisparticular scenario, there are quite substantial demands for technicalworkers past 2010.

One potential way for the MOD to reduce these peak demandsis to employ some level-loading strategies. These strategies entailshifting programmes later in time, extending build schedules, andincreasing build intervals. For one specific scenario in which weemployed these strategies, the peak workload was reduced. However,the MOD will need to consider operational needs in determiningwhether such an approach is feasible.

Labour Supply

The shipbuilding and repair industry will be challenged to meet thepeak workforce demands as outlined above. As many in the industryhave observed, the naval shipyard workforce is ageing and will signifi-cantly decline in the next few decades. Although there is no currentshortage of workers, the shipyards expressed concern about the futureavailability to recruit particular skills (e.g., design, electrical, test andcommissioning, and steel workers). Many of the shipyards havebegun apprentice programmes in recognition of the ageing problem.These programmes are aimed at maintaining current/core workforcelevels and not necessarily to meet future peak workload.

There are, of course, other labour sources from which the ship-yards can draw workers. For example, some of the shipyards haverecently made workers redundant. There is the potential to rehirethese former shipyard workers. There is also the opportunity to drawworkers from related industries and from among the general un-employed. Another alternative for the shipyards is to rely more heav-ily on outsourced activities—a trend that has been increasing as oflate.

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Despite these additional sources of labour, we feel that it will bedifficult for the shipyards to grow to meet peak labour demands. Ittakes time and effort to find and hire new workers. Further, newworkers to the industry take time to train and require at least two tothree years to become moderately productive. Therefore, if a shipyardhires too rapidly, it will have a hard time absorbing new workers andmaintaining productivity. Assuming a modest growth rate, the ship-yards as a whole may not be able to meet peak labour demand forproduction workers. Even under the level-loaded scenario, the ship-yards will be able to approximately meet the peak productiondemands. For the technical workforce, there are currently enoughworkers at the firms to grow to the needed peak levels, but only ifthese workers are retained through the near-term downturn. In all,meeting the peaks in workload demand will require that shipyardsshare work to a greater extent than they do now (although pro-grammes such as Type 45 should be indicative of the feasibility).

Facilities

A variety of facilities are required for the production of naval ships.We discussed the facility implications of the current plan in ChapterFour, where we concentrated on FA facilities (e.g., docks, slipways,and land-level areas) and AO locations (mainly piers and quays). Thischoice was mainly a result of data limitations and inconsistent meas-ures for other facilities, such as shops and manufacturing halls. Wedetermined that there are a number of challenges that the shipyardsface with respect to facilities. For the Type 45 programme, there willbe a substantial demand for FA and AO locations because of thebuild interval between ships (assumed to be six months). Althoughthe facilities on the Clyde might be able to handle this schedule (withfacilities upgrades and some careful scheduling), extending the buildinterval of the Type 45 to nine months might help to alleviate anypotential problems and make the build schedule more robust.

The CVF and MARS programmes face challenges because of thesheer size of the ships. CVF assembly will require some facilities up-grades and investments to be made somewhere in the United King-dom. There is no assembly location in use that can handle the CVF

Issues for the Ministry of Defence to Consider 151

ships without modification or upgrade. A further complication forthe CVF vessel is whether the FA location is also used to build por-tions (large blocks) of the ship. There is a potential overlap betweenthe assembly of the first hull and the production of blocks for thesecond hull. This implies that either the second hull’s blocks willneed to start construction outside the assembly dock or be delayeduntil the first hull leaves the dock.

Similarly, the larger MARS ships envisioned (assuming aPanamax-sized ship) will equally be challenged for an FA location.Although there are facilities in the United Kingdom that could con-struct these ships, it is likely that at least two facilities (or a facilitythat can construct two ships at once) will be needed based on thenotional build schedule. In most cases, any of these candidate facili-ties will need to be upgraded or reopened—thus requiring invest-ment.

Suppliers

As stated earlier, suppliers provide a substantial portion of the totalvalue of the ship. Our survey of both the shipyards and the suppliersindicates that there will be generally few issues with the increasedworkload for the suppliers. For the most part, the suppliers do notrely on MOD business, so they are less subject to the variations indemand (in contrast with the shipyards). Further, most of the suppli-ers are based in the United Kingdom. However, the suppliers haveindicated that the uncertainty in the MOD’s programme hinderstheir ability to plan and invest in a timely manner.

Potential Remedial Actions That MOD Can Take

The current shipbuilding plan of the MOD will be challenging.Without any remedial action, the MOD could face schedule slippageand cost increase for its ship programmes. Although we do notbelieve the current plan is impossible, the MOD could implement anumber of actions to make the plan more robust. The following aresome short-term considerations:

152 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

• Consider ways to level-load the labour demand. We haveaddressed this mitigation approach in Chapter Two. In essence,the MOD will need to carefully consider the timings of variousprogrammes. Some programmes will need to be shifted later,while others may need to have increased build intervals. Wehave shown an example of the effect of these level-loadingapproaches at the aggregate labour level (total industry), butsome care must be taken such that a particular shipyard is notadversely affected. Any levelling plan must be made in conjunc-tion with industry with an eye towards the effect on individualfirms. One major advantage of the level-loading approach is thatit tends to level funding requirements.

• Work with the DTI (and other government agencies) toencourage training in skills that have competing demands out-side the shipbuilding industry. There are a number of tradesand skills that the shipyards recognise as being difficult to recruitor hire. To meet peak workload, the shipyards will have to hireand train new workers. However, after the peak, workers willlikely become redundant. Therefore, the UK industry shouldfocus on training skills that are readily employable outside theshipbuilding industry. In this way, any resulting unemploymentcan be minimised. There are a few skills/trades that are readilyemployable but are still sought after in the shipbuilding indus-try. These are electricians, engineers, and drafters. The MODshould discuss with the DTI (and other government agencies)the potential of training programmes or incentives to cultivatethese skills.

• Consider relaxing the shipbuilding industrial policy to mitigateproblems resulting from peak demand. For trades and skillsthat are shipyard specific, such as structural workers, it makeslittle sense to hire and train workers to meet the peak demandonly to have to make them redundant a few years later. TheMOD should reexamine its industrial policy with respect toobtaining work content overseas. For the structural example, thepolicy might allow UK shipyards to obtain major units or sub-assemblies from abroad in cases in which there is peak demand

Issues for the Ministry of Defence to Consider 153

and it is not possible to easily obtain the content domestically.We are not suggesting, however, procuring the entire shipabroad but merely the work that can reduce transient peaks inthe industry.

• Encourage the use of more outsourcing. One way that com-mercial shipbuilders manage variable workloads is to employoutsourcing vendors that provide services and goods. These ven-dors are able to better level workload as they work across anentire industry (and perhaps several industries). Examples ofthese services are painting, electrical power distribution, joinery,HVAC, and combat systems. The use and benefits of out-sourcing has been a subject of a recent RAND report,1 whichdetails how the use of outsourcing varied quite substantiallybetween the UK shipyards and was generally low compared withother European shipyards. With the exception of Swan Hunter,the UK shipbuilders have not relied heavily on outsourcing.This trend is starting to change. For the Type 45, the cabins willbe procured as modular units from a supplier. The MODshould encourage, as much as possible, any outsourcing effortsby the shipyards.

• Evaluate the future of shipbuilding in Barrow. With the cur-rent realignment within BAE Systems, the Barrow-in-Furnessfacility is exclusively dedicated to submarine production. How-ever, the shipyard has produced many surface ships, includingthe most recent LPD(R) class. The end of surface ship buildingin Barrow resulted in significant redundancies and the closure ofsome facilities. Barrow remains an untapped source of produc-tion capability and could likely play a significant role in thecoming shipbuilding programme. The MOD and BAE need toevaluate what, if any, future makes sense for Barrow regardingsurface shipbuilding.2

____________1 Schank et al. (forthcoming).2 Recently, BAE has changed its strategy with respect to surface shipbuilding at Barrow andis now seeking opportunities for the facility.

154 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

• The medium-sized shipyards can help to meet some of thisdemand peak. Shipyards such as Ferguson, Harland and Wolff,and Appledore (if DML chooses to employ it for military ratherthan commercial fabrication) can play a role in meeting the peakdemands. These shipyards can build blocks or structural units toease the demand for structural workers. These medium-sizedyards might be able to produce smaller ships, as they have donefor survey vessels.

• Explore the utilisation of facilities for Type 45, CVF, andMARS. Our high-level analysis indicates that there may befacility challenges for these programmes. The MOD needs tounderstand where there are potential conflicts and the actionsthat can be taken to mitigate them.

• Have the SRG investigate the suppliers that are thought to beat risk. In our surveys, the shipyards identified certain suppliersthey felt to be at risk. It might be worthwhile for the SRG tointeract with the shipyards and suppliers to better understandthe ones at risk and any corrective actions required.

Beyond these immediate actions, there are some other longer-term issues that the MOD needs to consider.

The MOD Needs to Make Long-Term Industrial Planning Part of theAcquisition Process

Long-term industrial planning must become part of the process thatthe MOD uses to define the timing for the various naval require-ments. Being able to understand the implications of various pro-gramme timings on the shipyards will allow the MOD to have moreconstructive dialogues with the shipbuilding industry concerningtimings and workloads. It will also allow the MOD to quickly screenout infeasible plans and seek alternatives. Such planning should berecognised as part of being a ‘smart customer’.

Currently, each IPT is responsible for defining its own industrialplan. These activities are primarily done in isolation from the otherIPTs. So, each IPT attempts to choose the best plan with respect toits own programme. Yet, the resulting overall DPA position might be

Issues for the Ministry of Defence to Consider 155

suboptimal. This suboptimisation arises from the fact that pro-grammes that are early in the process (ones without a defined buildpolicy) must make due with the industry availability that results fromthe other IPTs’ choices. The shipyards are viewed as first-come, first-served resources, or it is industry’s problem to sort out the potentialconflicting demands. Thus, there may be cases that arise in which aparticular programme has limited choices in terms of available facili-ties, may have to engage in a more risky build strategy to meet theschedule requirement, or finds that a necessary resource is unavail-able. There is also the possibility that too many programmes getstarted and compete for too few resources.

The lack of long-term industrial planning is also demonstratedby the large swings in naval shipbuilding workload. The MOD findsitself in a ‘boom’ and ‘bust’ cycle of shipbuilding that is difficult tobreak. The MOD is currently approaching the next ‘boom’ phase fornaval shipbuilding (this last one occurred in the mid-1980s) with anindustry that has diminished since the last ‘boom’. After an antici-pated peak around 2007–2010, the cycle will turn and the industrywill be in a ‘bust’ phase. Only with a long-term view will the MODbe able to break this cycle. It will, however, require some difficultdecisions with respect to timings of programmes.

In our view, there are a few key benefits to better long-termplanning:

1. Better financial planning. Long-term planning will help theMOD (and Treasury) to have better forecasts of the financialimplications of the DPA acquisition strategy. Levelling demandwill help to level the spending on naval acquisition.

2. Reduced cost and schedule risk. Again, if the shipyards becomeoverburdened or forced to expand too rapidly, the likely outcomeis that ship programmes will slip or cost more than planned. It isnot an issue of the programme failing outright, but rather one ofefficiency.

3. Help the DPA anticipate problems. By looking at the demandson the yards, the DPA can independently anticipate problems andevaluate whether any remedy is needed. Right now, the DPA is

156 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

mostly in ‘reactive’ mode: The shipyards raise issues (possibly in apublic forum), and the DPA must respond (or not). For better orworse, the DPA is the principal customer of the shipyards. Thus,it has a role in helping the shipyards be successful by moderatingthe demands on them.

4. Aid in ending boom bust cycle. By planning for the long term,the DPA can understand the implications of deferring pro-grammes and can communicate these implications to other deci-sionmakers. Part of the reason for the near-term peak demand isthat certain acquisitions (e.g., MARS) have been delayed so longthat there is little schedule flexibility left if the Royal Navy needsto maintain this capability. By being able to show the effect ofdelay and deferral on the industrial base, the DPA can betteradvocate to decisionmakers potential industrial effects of theirdecisions. There seems to be little recognition of the consequencesof these delays.

A strategic examination of the overall build programme withrespect to the industrial impact should be done at least annually withan outlook of 10 to 15 years. The MOD needs to be disciplined intrying to balance its operational needs with industrial capacity and tobe more proactive in balancing the workload it places on the ship-yards. For better or worse, the MOD is the primary customer of theUK shipbuilding industry and will likely remain so indefinitely.

Define the Appropriate Role of the Offshore Industry

The UK offshore industry can contribute to the overall naval ship-building programme. The offshore industry brings several strengthsto shipbuilding: experience working on collaborative programmesand alliance-type structures, a network of suppliers and subcontrac-tors, experience with distributed design (engineering done in morethan one location), broad programme management, and logisticskills. The offshore industry does have some weakness with respect tonaval shipbuilding: lack of specific domain knowledge of militaryships (systems, standards, etc.); limited experience with DPA proce-

Issues for the Ministry of Defence to Consider 157

dures, policies, and general programme; and limited steel plate andsteel structure fabrication facilities.

The strengths of the offshore industry play well to the need forthe naval shipbuilding industry to work in a more collaborative fash-ion. As we have stated earlier, better work-sharing between the ship-yards will be necessary to meet the peak labour demand. The offshoreindustry might be the catalyst to make this work-sharing happen andfunction successfully. It is not likely, however, that the industry, ingeneral, will feature strongly in direct fabrication; it might featuremore prominently in assembly and integration.

Furthermore, the offshore industry’s role, if any, will need to bematched to the product. The more commercial-like the product, themore significant role it can play. For the combatants, their role willbe more limited.

Carefully Consider the Implications of Foreign Procurement ofComplete Ships

Some observers have suggested that one possible (and potentiallydesirable) way to meet MOD demand would be to procure shipsfrom foreign sources and thereby reduce the workload burden on theUK shipyards. Because our study focused on UK shipbuilding, wecannot comment on whether this approach is either feasible or desir-able. However, one must be cognisant of several disadvantages to thisapproach:

• There are two economic implications to consider when explor-ing foreign procurement. First, there are domestic benefits toprocuring ships in the United Kingdom. Money spent in theUnited Kingdom keeps workers employed and potentially offunemployment. The money that workers and companies spendwill indirectly stimulate the economy further (e.g., service firms,housing providers, stores and shops). Second, there is anexchange-rate risk when contracting with a foreign firm. As hasbeen seen with the JCA programme, these exchange rate swings

158 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

can lead to funding changes that are outside the control of theIPTs.3

• When considering procuring weapon systems from overseas,there is a concern that the United Kingdom will not have accessto the latest or other advanced technologies. For example, coun-tries generally do not export nuclear propulsion technology.Certain advanced sensors, missile systems, or stealth technolo-gies may also be withheld from the export market. Anotherrelated concern is whether the United Kingdom could acquiresolutions that are tailored to its specific requirements—asopposed to being limited to an off-the-shelf design.

Foreign procurement potentially leaves the United Kingdomsusceptible to political interventions. For example, if a foreign gov-ernment does not agree with a particular policy of the United King-dom, it could delay or withhold the delivery of a vessel as a leveragepoint. Or such an inclined government could prevent the sale al-together. These types of problems are not unheard of; one needs onlyto look at the difficulty Taiwan has had in purchasing conventionalsubmarines or the reversal of a frigate sale to Pakistan.

One might view this caution of foreign procurement ascontradicting our earlier recommendation to relax the shipbuildingindustrial policy. The difference between the two is the scale of itemspurchased. Our previous recommendation was to allow the yards tooutsource work to foreign sources when (1) there was a need toreduce a labour peak, (2) the workforce was not available elsewhere inthe United Kingdom, and (3) the workforce necessary would only beneeded for a short period. We did not imply that entire vessels shouldbe procured from foreign sources.

Labour Wage Pressures During Peak Demand

When demand exceeds supply in classic microeconomic theory, pricestend to rise. The MOD should be concerned that the labour demand____________3 See the explanation in National Audit Office (2002)

Issues for the Ministry of Defence to Consider 159

peak might cause upward pressure on shipbuilding wage rates. Thelink between wage escalation and skill shortages is disputed in the lit-erature: Some argue that there is a strong correlation between thetwo4, whereas others argue that the link is weak5. Nonetheless, theMOD should be aware that there might be higher-than-average wage-rate escalation in the shipbuilding industry during the labour peakand should develop its budgets accordingly.

Encourage Long-Term Investment Through Multi-Ship Contracts

As was noted in Chapter One, the naval shipyards have not mod-ernised facilities during the past several years as the result of limitedorders and a highly competitive market. One recent exception to thisis the Type 45 programme. Because the initial contract was for sixships (a multi-ship buy), both BAE Systems and VT are incentivisedto invest in facilities upgrades. Most notable is VT Shipbuilding,which has moved into a new facility in the Portsmouth Naval Ship-yard. Only with longer-term contracts are the shipyards able to justifythis type of major investment. If the Type 45 had been procured inannual lots of one to two ships, the investments made would be moredifficult, if not impossible, to justify. The benefit to the MOD is thatthe shipbuilders will hopefully achieve greater efficiencies and passreduced costs onto the defence ministry. It should be kept in mind,however, that such long-term contracts work better for maturedesigns and therefore may not always be appropriate for the first-of-class ship.

Consider the Feasibility of Competition in Light of the IndustrialBase Constraints

The MOD prefers to compete programmes and production wheneverpossible and feels that competition achieves best value for money.However, the MOD should consider whether competition wouldyield better prices or result in a balanced allocation of work under an____________4 Frogner (2002, pp. 17–27).5 Robinson (1996).

160 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

environment in which there is high resource demands. One possibil-ity in this environment is that there will be fewer potential bidders onsubsequent programmes. This reduction would leave the later pro-grammes with few bidders or no real competition. A second potentialis that the bidders will actually take on more work than is feasible oroptimal, thus creating potential later problems of cost growth orschedule slips. Finally, we have suggested that the shipyards will needto share workload to meet the labour peaks. Competition will makethe shipyards less inclined to cooperate for fear of loosing some com-petitive advantage.

Explore the Advantages of Common Design Tools

As the MOD programme enfolds, the UK shipyards and firms willlikely need to share both production and design resources to makethe current plan feasible. One difficulty in sharing design resources isthat each organisation has different three-dimensional CAD/CAMtools. Thus, interchanging data and working cooperatively on acommon design will be difficult. The MOD might want to facilitatea discussion between the firms (and potentially include the CAD/CAM vendors) to explore whether the industry should adopt a com-mon design tool, set of tools that are interoperable, or standards sothat design work can be easily interchanged. Common design toolswill also lead to common product models and databases, which willbenefit the MOD in the long run with easier logistics support.

Conclusions

In this report, we have shown that the current shipbuilding plan ofthe MOD will be a challenge to the industry resources available in theUnited Kingdom. The overlap of several programmes in the next fewyears will result in a high demand for labour and facilities. Anypotential shortfalls could result in cost increases and schedule delays.To mitigate these problems, we recommend that the MOD exploreways to level-load the demand through changes in programme tim-ings, work with the DTI to encourage training in skills that are trans-

Issues for the Ministry of Defence to Consider 161

ferable to other industries, and encourage the use of more out-sourcing. For the long term, the MOD needs to make industrialplanning part of its acquisition process to better balance the demandsit places on the industrial base and to break the boom-bust cycle.

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APPENDIX A

Effects of Schedule Slippage on MOD LabourDemands

In Chapter Two, we examined the impact that the MOD’s currentand future shipbuilding programmes would have on the shipbuildingindustrial base from the perspective of labour demand. Because thereis uncertainty regarding the number of ships that the MOD willeventually order, we ran a number of scenarios to show the impact ofdiffering ship order quantities on labour demand. At the end of thechapter, we then looked at a further scenario that attempted to levelthe MOD’s labour demand over time to make it easier for the indus-trial base to meet any peak labour demands. The purpose of thisappendix is to examine the effects of schedule slippage on MODlabour demands, since delayed programmes may cause increased andredistributed labour demands on the industrial base.

One of the implicit assumptions in all the scenarios we exam-ined in Chapter Two was that all the shipbuilding programmeswould run according to their planned schedules (i.e., there would beno delay in either the design and build schedules of any of the ves-sels). We made this assumption because it is reasonable for both theMOD and industry to use projected schedules to plan their labourdemands, especially since it is difficult to anticipate in advance whereunforeseen delays may occur.1 However, we know from experiencethat delays do often occur and that they affect future labour projec-____________1 Additionally, we made this assumption since we were looking to model the MOD’s pro-jected demands—i.e., demands according to a set schedule.

164 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

tions. These delays often are associated with ships that are the first-of-class as both the government and industry modify requirements, rec-oncile design and production conflicts, and work out the problemsassociated with designing and producing a new type of ship. Thesedelays often affect follow-on ships or other work in the shipyard, asindustry readjusts its production schedules to take the changes intoaccount. A careful read of recent NAO Major Projects Reports fromthe last few years shows the tendency for all defence procurementprojects, and not only naval projects, to slip in schedule and grow incost. Although the reasons for this schedule slippage and cost growthare outside of the scope of this report, we need to be aware of thistrend and account for it in our analysis.

The modelling tools we developed for this study and used toforecast MOD demand in a variety of scenarios in Chapter Two arewell suited to look at the impact of schedule slippage in the MOD’splanned shipbuilding programme. The model can easily show theimpact of delays in specific programmes, but it requires specific in-puts defining precisely which programmes will be delayed, for howlong, and how the total labour build hours will change because of thedelays. Thus, in a complex shipbuilding programme such as theMOD is undertaking, one can imagine a large number of feasibleschedule slippage scenarios, each with its own unique labour demandprofiles. Because it is not feasible to examine each of these possibili-ties in detail, the aim of this appendix is to show, through a simpleexample, how the MOD could take schedule slippage into accountwhen assessing its future labour demand.

It is also important to note that if specific ship schedules slip,there may be a number of knock-on effects within the industrial base.First, if a ship is delayed, the total labour hours required to build ordesign the ship will also likely increase. Schedule slippage will logi-cally lead to cost (and labour hour) growth. There are many reasonsfor this. Project management must continue to staff the project for itsentire duration; there may be rework required if designs change; pro-duction efficiencies may be lost should the schedule become less thanoptimal; or there may be additional facilities costs to account for the

Effects of Schedule Slippage on MOD Labour Demands 165

shipbuilding in a building hall or dry dock for longer than initiallyplanned.

Second, if a ship is delayed, it may affect the design or produc-tion of other MOD ships being built during the same time frame. Itis important to understand that, although ship classes are often man-aged by independent Integrated Project Teams within the DefenceProcurement Agency, decisions or delays for one programme willalmost certainly affect other programmes, should they be designed orproduced by the same shipbuilder.

To illustrate potential effects on total labour demand of delaysin design or production, we have devised a simple example, based onthe baseline case presented in Chapter Two. This example looks atthe impact of delays from a labour perspective only and does not con-sider facilities or labour supply limitations. For the purposes of thisillustration, we took the MOD’s prospective shipbuilding programmeas we assumed in the Chapter Two baseline case and looked at theimpacts on total labour demand if

• the production period for all MOD ships was extended by 24months (from their original end date)

• total labour for each ship increased by 10 percent (from the basecase).

We applied these assumptions only to the production of MODships (CVF, MARS, FSC, etc.); we excluded both the current refitprogramme, any export orders, and the nonrecurring design of anynew vessels. Additionally, we did not apply these assumptions to theLSD(A) or LPD(R) programmes because we assumed that these shipswere far enough into production as to not be delayed further.2

We realise that this specific scenario is unlikely—it is difficult topredict which, if any, programmes will slip as well as the duration andlabour impact of any slip. Thus, for simplicity, we made the aboveassumptions as a straightforward example to examine the impact of____________2 We did, however, apply these assumptions to the Type 45 and Astute submarine pro-grammes.

166 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

schedule slippage and labour growth.3 This illustrates that it is possi-ble to use the RAND labour projection model to do basic sensitivityanalysis to examine a range of potential unforeseen shipbuildingschedules, and we encourage the MOD to specifically examine pro-gramme slippage scenarios that it feels warrant the most attention.

After changing the data inputs of the model to take into accountour new assumptions, we calculated the MOD’s future labourdemand if all their programmes slipped by 24 months and the associ-ated labour increased by 10 percent. We show the results in FigureA.1.

As one may expect with programme delays, the peak workloadunder this scenario has shifted later in time. It is now just over a yearlater than the peak labour demand expected under the current plan

Figure A.1Schedule-Slip Scenario Labour Projections by Programme

Dir

ect

hea

dco

un

t

RAND MG294-A.1

18,000

0

14,000

16,000

12,000

10,000

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Type 45RefitMARSLSD(A)LPDJCTSFSCFOP VExportCVFAstuteCurrent plan

Year

2004 20122008 2016 2020 2024

____________3 By making these assumptions, the RAND project team is not implying that the MODshipbuilding programme schedule will slip. We are simply examining the impacts, should theprogramme slip to add further robustness to our results.

Effects of Schedule Slippage on MOD Labour Demands 167

examined earlier and is slightly lower than the current plan’s peakdemand. However, it is also important to note that, because ofschedule delays, there is significantly less labour demand for the nextfive years. This is compensated by an increased labour demand afterthe peak, again compared with the current plan of Chapter Two.Perhaps most substantially, because of an initial decrease in labourdemand, the schedule-slip scenario actually requires the greatestabsolute increase in workers from its low point in 2005 to its peakfive years later. This absolute increase is greater than that neededshould the programmes have encountered no schedule delays (i.e., thecurrent plan in Chapter Two). Thus, although this scenario presentsa later and slightly lower peak demand, the absolute increase inworkers needed from the low to high point of demand is greater thanif no delays existed.

In addition to looking at the overall MOD labour demand, wealso were able to look at the impact of the programme delays on indi-vidual skill trades to see how these areas would be affected. We showthe results in Figure A.2.

Looking at this figure, we see that there are no substantial differ-ences from the comparable chart for the current plan examined inChapter Two. There are, however, some minor differences. First, thelabour demand curves are all shifted slightly later in time. Second,there is a greater initial decrease in outfitting skill level demands.Third, the schedule delays seem to have smoothed or removed thesecond demand peak that was originally seen in both the outfittingand structural trades in the current plan.

As we mentioned in Chapter Two, although this analysis isappropriate for the overall macro-level of labour demand, it is impor-tant to understand the micro-level demand impacts of scheduledelays. Again, business sensitivities do not allow us to present theresults at that level, but that does not diminish its importance to theMOD as we suspect that programme delays will have a much greatermicro-level impact at the individual shipyard level, even if they donot greatly change the overall macro-demand.

168 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Figure A.2Schedule-Slip Scenario Labour Projections by Skill Level

RAND MG294-A.2

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ManagementOutfittingStructuralSupportTechnical

When one looks broadly at the impacts of schedule slipping onlabour demand, it tends to move the peak demand into the future,and in the case of our scenario, slightly decrease it—similar to theoverall effects of level-loading. This may lead some to question theneed for level-loading, especially if excess demand or other circum-stances will naturally level the demand without specific MOD plan-ning. To further examine this issue, Figure A.3 shows the change incurrent MOD labour demand under the original current plan, ourschedule slip scenario, and the level-loading plan presented at the endof Chapter Two.

The results of this comparison are extremely interesting. Whencomparing the level-loaded plan with the schedule slip scenario, it isclear that by selectively choosing which programmes to advance ordelay, the MOD can decrease variation in labour demand much more

Effects of Schedule Slippage on MOD Labour Demands 169

Figure A.3Base Case, Level-Loaded, and Schedule Slip Demands Compared to CurrentMOD Demand

Level-loading

Schedule slip

Current plan

–60

–40

–20

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20

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60

2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024Year

Perc

enta

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RAND MG294-A.3

effectively than through slipping all of its programmes.4 Although notconclusive, this should provide solid evidence of the benefits of level-loading, compared to either the current plan or allowing for a uni-form schedule slip. By actively managing it’s future shipbuilding pro-grammes through level-loading and other mechanisms, the MODwill better be able to utilise the industrial base.

Thus, in this appendix we have looked briefly at the genericeffects of schedule delay on overall MOD labour demand. As men-tioned earlier, our aim was not to make any judgements of whetherMOD shipbuilding programmes would be delayed and by howmuch, but rather to look more broadly at the impact of scheduledelay on labour demand. It appears that schedule delays will push thelabour demand peak farther into the future and may even slightlylower the peak demand. However, these delays may come at a price as____________4 The level-loaded percent line stays much closer to the zero percent change line in all earlyyears compared with the schedule-slip percent line. This decreased variation should make iteasier for the industrial base to better manage its workforce. The only time that the scheduleslip scenario improves is after 2018, when the bulk of the current MOD shipbuilding pro-gramme is finished.

170 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

they may lead in the short-run to decreased labour demand followedby an intense growth of demand. Further, level-loading appears to bea better way to manage both peak labour demand and overall labourvariation than hoping that schedule delays will smooth demand overtime.

171

APPENDIX B

Ship Dimensions

Table B.1 lists the basic ship dimensions (rounded to the nearestmetre) for those vessels described in Chapter Four. The data are takenfrom The Royal Navy Handbook: The Definitive MoD Guide.

Table B.1Basic Ship Dimensions

Length(metres)

Beam(metres)

Draught(metres)

AGa (Argus) 175 30 8AOb (Brambleleaf, Bayleaf, andOrangeleaf) 171 26 11Astute (SSN) 97 11 10Bay class (LSD[A]) 176 26 6Fort class (AFSc) 185 24 9Invincible class (CVS) 209 34 7LPD (Albion and Bulwark) 176 29 7Rover class (AORL) 141 19 7Type 23 (FFG) 133 16 5Type 45 (DDG) 152 21 5a Miscellaneous Auxiliary.b Fleet Oiler.c Combat Stores Ship.

173

APPENDIX C

Skill Breakout, by Management/Technical andManufacturing Categories

The following page details job categories, broken out by specific skills(Table C.1).

174 The United Kingdom’s Naval Shipbuilding Industrial Base: The Next 15 Years

Table C.1Skill Breakout, by Management/Technical and Manufacturing Categories

Category/Subcategory Specific Skill

Management/Technical

General Management ManagementAdministrationMarketingPurchasing

Technical DesignDrafting/CADEngineeringEstimatingPlanningProgramme control/project management

Manufacturing

Structure Steelworker, plater, boilermakerStructure welderShipwright/fitterTeam leader, foreman, supervisor, progress control(fabrication)

Outfitting Electrician, electrical technician, calibrator, instrumenttechnicianHull insulatorJoiner, carpenterFibreglass reinforced pipe laminatorMachinist, mechanical fitter/technician, fitter, turnerPainter, caulkerPipe welderPiping/machinery insulatorSheet metalTeam leader, foreman, supervisor, progress control(outfitting)Weapon systems

Direct Support Rigger, stager, slingers, crane and lorry operatorsService, support, cleaners, trade assistant, ancillaryStores, material controlQuality assurance/control

175

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